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Debt Advice Handbook 14th edition

National insurance contributions
National insurance (NI) contributions are a compulsory tax on earnings and profits above certain levels (set annually).
The legal position
NI contributions are payable under section 2 of the Social Security Act 1975, as amended by the Social Security Contributions and Benefits Act 1992.
Special features
Employed people pay class 1 NI contributions directly from their wages and so do not build up arrears. Class 2 contributions must be paid by self-employed earners unless they have a certificate of exemption on the grounds of low income. Self-employed people have to pay class 2 NI contributions by monthly direct debit or quarterly bill. In addition, self-employed people may have to pay class 4 contributions, calculated as a percentage of their profits above a certain level (set annually). After the year end, HM Revenue and Customs (HMRC) sends out demands to self-employed people from whom it has not received the required class 2 contributions.
If a self-employed person has also employed someone else, s/he may be liable for class 1 NI contributions for the employee, as well as class 2, and perhaps 4, for her/himself.
Demands for payment should be distinguished from the notice sent to people whose contribution record is insufficient to entitle them to use it towards a retirement pension or bereavement benefits. In such cases, HMRC sends a notification giving the opportunity to make up the deficit for a particular year with voluntary (class 3) contributions. This is not a demand for payment.
It is vital that the client pays any ongoing contributions on time and makes arrangements to repay any arrears, otherwise HMRC can take control of essential goods without a court order and so close down a business. In addition, if contributions remain unpaid, the client’s eventual entitlement to contributory benefits, including retirement pension, will be affected.
Checklist for action
Advisers should take the following action.
    Consider whether emergency action is necessary (see Chapter 8).
    Consider whether the client should be referred to a specialist agency – eg, TaxAid.
    Otherwise, assist the client to choose a strategy from Chapter 8 as this is usually treated as a priority debt.