Class 2 NI for Limited Company Directors

[LHuang]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

[HSK Accountancy Services]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

Directors of limited companies are not required to pay Class 2 NI. But they need to tell HMRC that they are directors of a limited company and should get their Unique Tax reference (UTR) and must file their personal self-assessment return. Even most of the time there will not be any additional tax.

The CW who asked this detail must be junior one and not experienced enough and does not know the difference between sole trader and director.

[jeno]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

Directors of limited companies are not required to pay Class 2 NI. But they need to tell HMRC that they are directors of a limited company and should get their Unique Tax reference (UTR) and must file their personal self-assessment return. Even most of the time there will not be any additional tax.

The CW who asked this detail must be junior one and not experienced enough and does not know the difference between sole trader and director.

Yes HSK, You're perfectly right. It's happening very often. One of my friend who run the limited company, has been refused on the basis of Class 2 NI/Self employment registration etc. then he challenged with the Accountan't letter. Have you got any cases like this. What/how to take action in advance to avoid these things happen at last?

[gaurav76.5]

He should file an appeal stating and show the HMRC guidelines about the NI contribution paid by Director and Sole Trader..

[papu.sarkari]

Hi Guys,

I had queried about the same few days ago. I started my company last september. I am applying for my extension end of August.

Do you think that a letter from Accountant clearly stating that Class 2 NI is not required to be paid is good enough?

The letter can also include dates when the Self Assessment for the Director will be carried out as well.

Thanks in advance for the reply.

Regards,

Papu.

[HSK Accountancy Services]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

Directors of limited companies are not required to pay Class 2 NI. But they need to tell HMRC that they are directors of a limited company and should get their Unique Tax reference (UTR) and must file their personal self-assessment return. Even most of the time there will not be any additional tax.

The CW who asked this detail must be junior one and not experienced enough and does not know the difference between sole trader and director.

Yes HSK, You're perfectly right. It's happening very often. One of my friend who run the limited company, has been refused on the basis of Class 2 NI/Self employment registration etc. then he challenged with the Accountan't letter. Have you got any cases like this. What/how to take action in advance to avoid these things happen at last?

Hi Jeno, Sorry for the late reply. Unfortunately, these kind of mistakes happen. HO staff are not accountants and they just follow the book.

People should take preventive measures and should do the following:

1- Ask their accountant to write this in his/her letter and explain the difference between class 1 and class 2 NIC.
2- Applicants should also explain this in their cover letters.
3- Try to get in person appointment and explain this to CW face to face.
4- Get reference from HMRC guidance on Class 2 NIC. If you search on HMRC website you will the find the relevant pages explaining this.

If anybody who has already applied and get rejection on this basis he/she can appeal against the decision.

I hope this help.

@ Papu- Yes it is good idea as I explained above.

[jeno]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

Directors of limited companies are not required to pay Class 2 NI. But they need to tell HMRC that they are directors of a limited company and should get their Unique Tax reference (UTR) and must file their personal self-assessment return. Even most of the time there will not be any additional tax.

The CW who asked this detail must be junior one and not experienced enough and does not know the difference between sole trader and director.

Yes HSK, You're perfectly right. It's happening very often. One of my friend who run the limited company, has been refused on the basis of Class 2 NI/Self employment registration etc. then he challenged with the Accountan't letter. Have you got any cases like this. What/how to take action in advance to avoid these things happen at last?

Hi Jeno, Sorry for the late reply. Unfortunately, these kind of mistakes happen. HO staff are not accountants and they just follow the book.

People should take preventive measures and should do the following:

1- Ask their accountant to write this in his/her letter and explain the difference between class 1 and class 2 NIC.
2- Applicants should also explain this in their cover letters.
3- Try to get in person appointment and explain this to CW face to face.
4- Get reference from HMRC guidance on Class 2 NIC. If you search on HMRC website you will the find the relevant pages explaining this.

If anybody who has already applied and get rejection on this basis he/she can appeal against the decision.

I hope this help.

@ Papu- Yes it is good idea as I explained above.

HSK. Thank you very much. It's really very useful guidance for people who run through the Limited company. And also, I have another question, If a person run through a Limited company, can you please tell us, what are the tax liabilities/responsibilities that the company has and also the director as the person. Can you please list down all the tax documents for each, ie , Company as a corporate, Director as a person.

Thanks

[anishmathw]

Have seen quite a few post recently on people getting requests from UKBA during their applications to produce evidence of paying Class 2 NI even though they're not registered with HMRC as "self-employed" or "sole trader" and hence should not have to pay.

A friend of mine who's a director of his own limited company have had the same request (with a 15 day deadline) and I think he's quite devastated now.

He's produced P60 from the previous year showing class 1 NI contribution, and payslips and bank statements that confirm these in the original application - he couldn't have been more thorough.

He's provided a letter from his accountant now. Let's see how it goes and I'll keep you updated.

Meanwhile, anyone has any suggestions? Seems to me a very worrying issue for those of us who contract through our own limited companies.

Directors of limited companies are not required to pay Class 2 NI. But they need to tell HMRC that they are directors of a limited company and should get their Unique Tax reference (UTR) and must file their personal self-assessment return. Even most of the time there will not be any additional tax.

The CW who asked this detail must be junior one and not experienced enough and does not know the difference between sole trader and director.

Yes HSK, You're perfectly right. It's happening very often. One of my friend who run the limited company, has been refused on the basis of Class 2 NI/Self employment registration etc. then he challenged with the Accountan't letter. Have you got any cases like this. What/how to take action in advance to avoid these things happen at last?

Hi Jeno, Sorry for the late reply. Unfortunately, these kind of mistakes happen. HO staff are not accountants and they just follow the book.

People should take preventive measures and should do the following:

1- Ask their accountant to write this in his/her letter and explain the difference between class 1 and class 2 NIC.
2- Applicants should also explain this in their cover letters.
3- Try to get in person appointment and explain this to CW face to face.
4- Get reference from HMRC guidance on Class 2 NIC. If you search on HMRC website you will the find the relevant pages explaining this.

If anybody who has already applied and get rejection on this basis he/she can appeal against the decision.

I hope this help.

@ Papu- Yes it is good idea as I explained above.

Hello HSK,

I am planning to apply for Tier 1 extension through my full time job as salaried plus earning from limited company where I am director holding 100% stake. Now I received letter from HMRC demanding Class 2 NI of total £130 to be paid by 31st July 2012. As per your guidlines am I liable to pay this or should I contact them to void this. ? Or if payment will benefit me on extension application Can I pay this now and reclaim after next year ?

I appreciate your advise.

[yuwushih2005]

show the HMRC guidelines about the NI contribution paid by Director and Sole Trader..

[shargaur]

I think this has been hot topic. Let me rephrase it.

HMRC says: As director you can only get dividend but if you are getting salary from your company as employee then you should register as PAYE and pay the NI. Wait Wait Wait ...if your weekly pay is less than 144 quids/week then you dont have to pay any NI on your salary. You don't pay any tax on this salary and only pays dividend tax (aka Corporation Tax).

UKBA says: If you are director, you are self employed.

I think, its a job of accountant to clear write in a letter to UKBA that the concerned person is registered as PAYE and has to pay NI Class A but because his salary is less than threshold, he should not pay any NI. Also, as director of company he is only taking dividend on which you don't have to pay any NI.