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Class 2 NI Calculation Error

11 - 07 - 2025

HMRC is working to fix a 2024/25 Class 2 NIC error whereby taxpayers are receiving letters informing them that their tax return has been amended.  

From the 2024-25 tax year, self-employed individuals with profits in excess of £6,725 no longer need to pay Class 2 national insurance contributions (NIC).

 

Instead those taxpayers will receive a national insurance credit to secure their access to contributory benefits such as the state pension.

 

Several of the professional bodies have received reports from their members that Class 2 national insurance is being incorrectly included in SA302 tax calculations for 2024-25. Following submission of their tax return affected taxpayers have received letters from HMRC informing them that their return has been amended in one of three ways. HMRC has either:

 

·        - added £179.40 to the computation which should not have been added and needs to be removed;

·        - added £179.40 to the computation which needs to be removed and wrongly increased the tax liability by double this amount; or
- amended the Class 2 NIC amount to zero, which is in line with the original submission. In this instance no further action is required and the letter can be ignored.

 

This issue has been reported to HMRC and the department is investigating it as a matter of urgency. HMRC has advised taxpayers and their Agents to take no action as they will resolve the error internally. 

 

If you have profits from self-employment above £6,725 and have submitted your self assessment tax return for 2024-25, we can help you check whether your tax liability and/or Class 2 NIC have been amended incorrectly by HMRC. Contact us on contactus@foremansllp.com or 01244 625 500.

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage