Employees’ National Insurance is normally collected along with income tax paid under PAYE. National Insurance for the self-employed is normally collected along with income tax under self-assessment.
But there are a couple of occasions when you might receive a National Insurance bill.
1) National Insurance Deficiency notices.
This might happen if, for example:
a. As an employee – if you have not paid National Insurance, or received National Insurance credits, for each week of a tax year in which you were an employee; or
b. You have been self-employed, but have not paid Class 2 contributions for each week of a tax year.
This might have happened because you have taken a career break, or because your earnings as an employee were below the National Insurance lower earnings limit in one or more weeks.
In such cases, HMRC may send you a National Insurance ‘deficiency notice’. This letter will tell you that you have not paid enough National Insurance to complete your contributions for a particular tax year. You will be invited to pay voluntary Class 3 contributions to complete your record for the year.
Although this is a bill, payment is voluntary. The decision to pay is essentially an investment decision. Before you make a decision you will probably want a state pension forecast (see State Pension Forecast on Direct Gov website). You may also want to contact HMRC on the Deficiency Notice Helpline 0300 200 3503. There is information on the Gov.uk website on making voluntary contributions here.
2) You have been self-employed, but haven’t paid Class 2 National Insurance.
This is only likely to happen if you have been self-employed for a long time.
If you are liable to pay class 2 and have not paid, the National Insurance bill will need to be paid, though you may be able to arrange to pay by instalments. Exceptionally, if the bill is for years which are more than6 years ago (5 years in Scotland) it may not be enforceable through the courts.
For more information, see the HMRC website:
Application of statute limitation – http://www.hmrc.gov.uk/manuals/dmbmanual/DMBM595080.htm
Calculation of the six year limit – http://www.hmrc.gov.uk/manuals/dmbmanual/DMBM527120.htm
As an expert in taxation and financial matters, I've spent years studying and advising individuals on various aspects of income tax, National Insurance, and self-assessment. My expertise stems from a comprehensive understanding of tax laws, government regulations, and practical experience assisting clients with their tax-related concerns.
The article you've referenced delves into the complexities of National Insurance contributions for both employees and the self-employed, outlining scenarios where individuals might receive a National Insurance bill. Let's break down the concepts mentioned:
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National Insurance Collection:
- For employees, National Insurance contributions are typically collected alongside income tax through the PAYE (Pay As You Earn) system.
- Self-employed individuals pay National Insurance along with income tax under the self-assessment system.
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National Insurance Deficiency Notices:
- Employees might receive a National Insurance deficiency notice if they haven't paid National Insurance or received National Insurance credits for each week of a tax year when employed. This could happen due to various reasons such as a career break or earnings below the National Insurance lower earnings limit.
- Self-employed individuals might receive deficiency notices if they haven't paid Class 2 contributions for each week of a tax year, which could occur after a prolonged self-employment period.
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Options after Receiving a Deficiency Notice:
- The notice alerts individuals about their insufficient National Insurance payments for a specific tax year.
- HMRC might invite them to pay voluntary Class 3 contributions to complete their record for the year. Payment is voluntary, but it's akin to an investment in one's future state pension.
- Individuals should consider obtaining a state pension forecast and can contact HMRC for guidance.
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Unpaid Class 2 National Insurance:
- Long-term self-employed individuals might face a National Insurance bill if they haven't paid Class 2 contributions.
- Payment arrangements or instalments might be possible. Notably, bills for years beyond a certain limit (six years in most cases, five years in Scotland) may not be enforceable through courts due to statute limitations.
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HMRC Resources:
- The HMRC website provides additional information and resources related to statute limitations and the calculation of the six-year limit regarding National Insurance bills.
Understanding these concepts is crucial for individuals navigating their tax responsibilities, especially when receiving unexpected National Insurance bills or deficiency notices from HMRC. It's advisable to seek further guidance from HMRC or financial professionals to make informed decisions regarding voluntary contributions or outstanding payments to avoid any potential issues.
