Catch 22 on Class 2
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Your profits are below £1,250, but exemptions or refunds from Class 2 NI contribs can be very hard to get. Freelanc( accountant S. F. Willis shows there are ways of breaking free of Catch 22
IF YOU ARE self-employed, whether as a sole trader or in partnership, you are liable to pay £2.50 Class 2 National Insurance contribution every week, unless your profits (that is your total sales less allowable expenses), are below a certain level — currently £1,250.
To avoid paying Class 2, you must first get an exception certificate which must be applied for before the start of the tax year and before you know whether your profits are below the limit, since trading accounts are needed to support the application.
Having determined that your profits are below the exception limit there is (as yet), no provision for a repayment of contributions paid. The self-employed are bound by law to stamp a card weekly or pay by bankdraft, and yet when their accounts show that profit is below the level set by parliament for the payment of Class 2, they can't get a refund.
Take a typical example of two partners in business together running a workshop and a retail shop. Partner A is also employed full-time by an employer and so pays Class 1. But he is also liable to pay Class 2. Partner B runs the shop and is liable to Class 2.
Now partner A omits to stamp his card weekly because he does not realise he was required to do so. When the profit of the partnership accounts are shown to be below the minimum level, th local DHSS waives the payment of Partner A even though he i liable for prosecution for failin to pay the Class 2 contributio weekly.
Partner B, who has properl stamped his card weekly, ar plies for a refund, only to be rE fused on the grounds that n provision exists to refund contr butions. So the present situatio favours the wrongdoer.
The matter has been taken u with the Secretary of State, an provisions may soon be enacte to make the repayment of ClaE 2 contributions possible when can be clearly shown that th profit is below the exceptio level.
Meanwhile, if you are a Class payer and think that your proff are likely to be in the region £1,250 (or £1,250 per partner you should apply for an excel tion certificate as soon as po sible. There is provision for e application to be backdated 1 weeks. You should obtain leaft N127A, which includes the app cation form.
For those who are in full-tinr employment but run a businel in their spare time, they shou apply for deferment of Class For this you will need leafl NP18, again the application for is included in the leaflet.
• Mr Willis is a freelance countant who specialises in a vising small businesses.