HMRC warning as tax error could see workers lose National Insurance benefits

The problem came to light as a result of accountants noticing the problem for their clients

An HMRC error means self-employed workers could lose out on National Insurance-related benefits, experts have warned.

The Low Incomes Tax Reform Group (LITRG) says that some low-income, self-employed workers lose their entitlement to National Insurance-related benefits like the state pension due to an error by HMRC. The issue centres around the payment of voluntary Class 2 National Insurance contributions (NICs) that can be made by self-employed taxpayers with profits under £6,725.1

Taxpayers usually pay these voluntary contributions as part of their self-assessment return which must be sent to HMRC by January 31 each year. HMRC then automatically transfer the payments to the taxpayer’s National Insurance record to be counted towards their entitlement to the state pension and other employment benefits such as maternity allowance and bereavement pay.

However, the LITRG says HMRC sent the Class 2 National Insurance payments late this year which automatically registered them as being “paid late” which in turn meant they were automatically rejected and refunded. LITRG says contributions up to £163.803 were refunded automatically to some taxpayers. The problem came to light as a result of accountants noticing the problem for their clients.

The group explained that if the contributions were paid late, then this would be correct. However, the issue comes as these particular contributions were paid on time by the taxpayers. HMRC performed the internal data transfer late – and as a result, the contributions were incorrectly rejected and refunded.

The LITRG says that “without any action” taxpayers affected could miss out on a qualifying year of National Insurance contributions. The group have called on HMRC to identify and contact those affected so they correct their National Insurance record.

“We would also like to see HMRC acknowledge the error and proactively offer help to those taxpayers who have been affected, in line with HMRC’s own charter commitments. However, until they do so, there are practical steps that taxpayers can take to maintain their entitlement to National Insurance related benefits.”

If you have received a refund but want to repay your National Insurance for the 2022/23 tax year then you will need to contact HMRC’s National Insurance helpline on 0300 200 3500. An HMRC spokesperson confirmed the issue saying: “We apologise to those affected and are working to resolve this issue as a matter of urgency.”