Voluntary Class 2 NICs where 2019/20 tax return filed after 31 January 2021

If you are self-employed, you will pay Class 2 and Class 4 National Insurance contributions if your profits exceed the relevant thresholds. Class 2 National Insurance contributions are the mechanism by which you build up qualifying years to earn entitlement to the state pension and certain contributory benefits. If your profits are below the small profits threshold, you can opt to pay Class 2 National Insurance contributions voluntarily to maintain your National Insurance record.

Extended deadline for filing 2019/20 tax return

The normal filing deadline for the 2019/20 self-assessment tax return was 31 January 2021. However, to help taxpayers affected by the COVID-19 pandemic, HMRC waived the late filing penalty that would usually apply where a return was filed after 31 January, as long as the return was filed by midnight on 28 February 2021. This effectively extended the filing window by one month.

This had unintended consequences for self-employed taxpayers who opted to file their 2019/20 tax return in February 2021, and who chose to pay Class 2 National Insurance contributions voluntarily where their profits for 2019/20 were below the small profits threshold for that year of £6,365.

Nature of the problem

HMRC’s systems were unable to deal with the payment of voluntary Class 2 contributions where the 2019/20 tax return was filed after 31 January 2021. They did not have time to implement alternative procedures either.

The normal deadline for paying Class 2 National Insurance contributions for 2019/20 was 31 January 2021.

If you opted to pay Class 2 National Insurance Contributions voluntarily and paid by this date but before the return was filed, they could not be processed as HMRC were unaware of what the payment related to. This may be the case if you made the payment before the 31 January 2021 deadline, but filed your tax return in February 2021.

If you filed your return in February 2021 and paid your voluntary Class 2 National Insurance contributions when you filed your return, the contributions were paid late as they were paid after 31 January 2021. In this situation, HMRC corrected your return to remove the voluntary contributions.

Payments made in respect of voluntary Class 2 contributions in these circumstances were allocated elsewhere, held on account or refunded.

The solution

If you have been affected by this issue, you should contact HMRC on 0300 200 3500 as soon as you become aware that this is the case, for example, when you receive a refund, or see from your personal tax account that your contributions have been allocated against another payment.

If you have already received a refund, HMRC will let you know how you can pay Class 2 contributions voluntarily. If you have not already received a refund, they will ensure that the payment is correctly recorded as Class 2 National Insurance contributions.

Check your National Insurance record

It is advisable to check your National Insurance record to see if you have any gaps. Failure to contact HMRC if you have been affected by the above issue may mean that you do not receive a credit for 2019/20, resulting in a gap in your contributions record.

Contact us

Contact us if you paid voluntary Class 2 National Insurance for 2019/20 and filed your return in February 2021 to check that your contributions have been credited to your account.

Claim tax relief for expenses of working from home

If you are an employee and you are, or have been, working from home as a result of the COVID-19 pandemic, you may be able to claim tax relief for the additional household costs that you have incurred as a result. HMRC are now accepting claims for the current (2021/22) tax year.

Nature of the relief

You can benefit from the relief if you are an employee and you were told by your employer to work from home as a result of the COVID-19 pandemic and, as a result of working from home, your household costs have increased. For example, your electricity bill may be higher because you are using your computer all day and your gas bill may be higher because you have the heating on while you are working.

You can also claim the relief if you work from home other than because of the pandemic, as long as the nature of your job requires you to work from home. However, you are not able to claim the relief if you simply choose to work from home rather than at your employer’s workplace.

If your employer has met the cost of your additional household costs (to which a separate tax exemption applies), you are not entitled to claim the relief as well.

Amount of the relief

A claim for tax relief for additional household costs of £6 per week (£26 per month) can be made without the need to provide evidence to support the claim. The claim is worth £62.40 a year if you pay tax at the basic rate, £124.80 a year if you pay tax at the higher rate, and £140.40 a year if you pay tax at the additional rate.

If your household bills have risen by more than £6 per week as a result of working from home, you can claim tax relief based on the actual additional costs. However, you will need evidence, for example, copies of bills showing how costs have increased, to back up your claim.

Making a claim

You can claim relief via the dedicated HMRC portal.

Relief is given for the whole tax year, regardless of the number of weeks for which you worked from home. Once HMRC have approved your claim, they will amend your tax code to take account of the relief.

If you worked from home as a result of COVID-19 during 2020/21 and have yet to make a claim for tax relief for your additional household costs, it is not too late – HMRC will accept backdated claims for up to four years.

Get in touch

Why not get in touch to find out whether you can claim tax relief for the additional costs of working from home.

Claim relief for shares of negligible value

If you have some shares that have become worthless, you can make a negligible value claim. This will allow you to set the associated loss against any chargeable gains that you make in the same, or a later, tax year, potentially reducing the amount of capital gains tax that you pay.

Making a claim

A claim can be made either in your self-assessment tax return or by writing to HMRC.

If you are making a claim in respect of unquoted shares, you will need to provide the following information in support of your claim:

• a statement of affairs for the company and any subsidiaries;
• a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
• details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
• evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).

If your claim is in respect of shares in a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.

For quoted shares, HMRC produce a list of shares that they accept being of negligible value.

Talk to us

Talk to us to find out how you can benefit from making a negligible value claim for shares that have become worthless.

Amending a PSA for COVID-19 benefits

You can use a PAYE Settlement Agreement (PSA) if you wish to settle the tax liability arising on the provision of a benefit-in-kind or an expense on an employee’s behalf. This can be useful if you wish to preserve the goodwill nature of a particular benefit.

Nature of a PSA

Where a PSA is in place, the employer pays tax and Class 1B National Insurance contributions on the items included within the PSA, while the employee enjoys the benefit free of tax and National Insurance.

A PSA is not suitable for all benefits-in-kind. To qualify for inclusion, the benefit must fall within one of the following categories:

• it is minor;
• it is provided irregularly; or
• it is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.

As payment of tax on an employee’s behalf is itself a taxable benefit, the amount of tax that you must pay on items included within your PSA is grossed up to reflect the marginal rates of tax of the employees to whom the benefits are provided. The relevant Scottish and Welsh rates are used for employees who are Scottish and Welsh taxpayers.

You must also pay Class 1B National Insurance contributions at 13.8% on items included within your PSA in place of the Class 1 or Class 1A liability that would otherwise arise, and also on the tax due under the PSA. The tax and Class 1B National Insurance must be paid by 22 October if you make the payment electronically, or by 19 October if you pay by cheque.

Setting up a new PSA

If you do not already have a PSA in place and want to set one up for 2020/21, you need to do this before 6 July 2021. Guidance available on the Gov.uk website explains what you need to do.

An enduring agreement

Once you have set up a PSA, it remains in place until it is cancelled or amended by you or by HMRC. Therefore, if you already have a PSA set up, you should review it to make sure that it is still valid. This should be done in sufficient time for any changes to be made before 6 July 2021.

Adding in COVID-19 benefits

The COVID-19 pandemic changed the way in which many employees worked, and you may have changed the benefits that you provided to your employees during the 2020/21 tax year as a result. If you have provided taxable benefits as a result of the pandemic, and you want to include them within your PSA, you will need to do this by 6 July 2021.

To amend your PSA, you will need to send details of the changes that you would like to make to the HMRC office that issued your PSA. Normally, HMRC will send you a revised P626 (the PSA). However, where the changes relate only to benefits provided as a result of the COVID-19 pandemic, they will instead add an appendix to your existing PSA.

Remember, you do not need to include exempt benefits within your PSA. There are a number of time-limited exemptions for Coronavirus-related benefits, such as those for employer-provided and reimbursed antigen tests.

Speak to us

Talk to us about whether a PSA is for you, and about what you need to do if you want to meet the tax liability on benefits provided to employees during the COVID-19 pandemic.

Reporting expenses and benefits for 2020/21

If you are an employer and you provided taxable expenses and benefits to your employees during the 2020/21 tax year, you will need to report these to HMRC on form P11D, unless all benefits were payrolled or included within a PAYE Settlement Agreement. You will also need to file a P11D(b). Both forms must reach HMRC by 6 July 2021.

Form P11D

A form P11D is needed for each employee to whom you provided taxable expenses and benefits in the 2020/21 tax year (which ended on 5 April 2021) and which you need to report to HMRC. You do not need to include any benefits or expenses which have been dealt with through the payroll, or those which you have been included within a PAYE Settlement Agreement. Likewise, you do not need to report any benefit or expense that is fully exempt. However, remember that an exemption only applies if all the associated conditions have been met.

The information that you will need to provide depends on the nature of the benefit. Some sections of the P11D are relatively brief, requiring only details of the cost of providing the benefit, any amount made good by the employee, and the taxable amount, while more information is required in respect of certain benefits, most notably company cars and employment-related loans.

Taxable amount: the cash equivalent value

Where the benefit is made available to an employee other than through a salary sacrifice or other optional remuneration arrangement (OpRA), the taxable amount is its cash equivalent value. The calculation of the cash equivalent value depends on the particular benefit. Some benefits have their own benefit-specific rules for calculating the cash equivalent value. Where the benefit or expense is of a type for which there is no specific rule, the cash equivalent value is calculated in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee.

HMRC produce working sheets that can be used to calculate the cash equivalent value for some benefits in kind.

Taxable amount: alternative valuation rules

Where the benefit or expense is made available through an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, alternative valuation rules apply to all but a handful of benefits. Under the alternative valuation rules, the taxable amount of the benefit is determined by reference to the salary given up, less any amount made good by the employee, where this produces a value that is higher than the cash equivalent value. The alternative valuation rules have the effect of negating any associated exemption. They do not apply to childcare and childcare vouchers, pension contributions and advice, employer-provided cycles and cyclists’ safety equipment, and low emission cars with CO2 emissions of 75g/km or less. These benefits continue to be taxed according to their cash equivalent value and retain the associated exemptions where the qualifying conditions are met.

Under transitional arrangements, the alternative valuation rules do not apply for 2020/21 to living accommodation, school fees or cars with CO2 emissions of more than 75g/km which are provided under an arrangement that was in place on 5 April 2017 and was not renewed, varied or amended prior to 6 April 2021. Variations as a result of the COVID-19 pandemic are ignored for these purposes. The transitional arrangements came to an end on 5 April 2021, and the alternative valuation rules apply for 2021/22 and later years.

Making good

Any amount that the employee is required to contribute (‘make good’) to the cost of the benefit is taken into account in calculating the taxable amount, as long as the amount is ‘made good’ by 6 July 2021. This can be done by deducting the relevant amount from the employee’s salary, or by the employee making a payment direct to you.

Form P11D(b)

You must file a P11D(b) by 6 July 2021 if you provided taxable expenses to your employees in the 2021/22 tax year which have either been payrolled or reported to HMRC on your employees’ P11Ds. Form P11D(b) serves two functions – it is your declaration that all required P11Ds have been submitted to HMRC, and also your Class 1A National Insurance return. You will need to file a P11D(b) even if you have no P11Ds to file because you have payrolled all taxable benefits and expenses that you provided to your employees during the 2020/21 tax year. Payrolled benefits need to be taken into account in working out your Class 1A National Insurance liability.

If you did not provide any taxable benefits in 2020/21, but have been sent either a paper P11D(b) or a reminder letter to complete one, you will need to make a nil declaration online to avoid being charged a penalty. This may be required if you provided taxable benefits in 2019/20 as HMRC’s expectation is that they were also provided in 2020/21.

Filing options

There are various ways in which you can file forms P11D and P11D(b). They can be filed online using HMRC’s Online End of Year Expenses and Benefits Service, HMRC’s PAYE Online Service (up to 500 employees only), or via a suitable commercial software package. You can also complete paper forms and send them to HMRC by post.

Forms for the 2020/21 tax year must reach HMRC by 6 July 2021. You must also give your employees a copy of their P11D (or details of the taxable expenses and benefits provided to them in 2020/21) by the same date.

You must pay your Class 1A National Insurance by 22 July 2021 if you make your payment electronically. If you opt to pay by cheque, this must reach HMRC by 19 July 2021.

We can help

We can help you meet your filing obligations and help you minimise the risk of receiving a penalty for late or incorrect returns.