Class 2 NICs and late registration penalties

[JJBaumhardt]

1) Last tax year (2004/5) my daughter earned under £3000 nett as a locum pharmacist in addition to her fulltime employment on which she paid NICs. When she told her tax office of her additional earnings in September she was told that she would be fined £100 for registering as self-employed more than three months after she started to receive the extra income. Will the IR really impose a fine even though it seems likely that she will be exempt from Class 2 NICs? If so are there mechanisms/grounds for appeal?
2)Must she pay class 2 NICs for weeks when she does no locum work?
Thanks for any advice.

[Lambs]

J, in my experience, where the level of earnings which are subject to Class II NI Contributions fall below the level of the Small Earnings Exception, NICO does not press for the penalty.

I believe this remains the case, even if the individual has other sources of income. I am afraid that I am not aware of anything in the legislation / internal guidance which 'ratifies' this approach, I am merely describing what I have seen in practice.

There may well be something in NICO's manuals which determines policy in such circumstances. Perhaps another contributor is aware of this and could shed more light.

Best wishes,

Lambs

[deanshepherd]

Lambs is correct.

No penalty is payable if the net income is below the small earnings exception (£4,315 for 04/05).

No Class 2 NIC is payable for the same reason and a claim for exception should have been made using form CF10 (available on HMRC website).

Form CF10 cannot be completed retrospectively so I suggest if you are paying class 2 nic already then cancel the direct debit. If you have been issued with a penalty then write a letter back to HMRC stating income was below small earnings threshold and attach a copy of the accounts.

You can apply for a refund of the penalty and any overpaid class 2 nic if necessary.

You may wish to complete form CF10 for the current year as well if your circumstances have not changed.


Dean Shepherd
dean.shepherd@mmi-online.co.uk
MMI Accountancy
www.mmi-online.co.uk