Some self-employed taxpayers could have unexpected gaps in their National Insurance records, even though they completed Self Assessment tax returns and believed their tax affairs were up to date.
HMRC has identified an issue affecting people who declared self-employed or partnership income between 2015–16 and 2023–24 but were not correctly registered to pay Class 2 National Insurance contributions.
For some taxpayers, this means years in which they were actively self-employed may not currently count as qualifying years towards their State Pension.
This does not necessarily mean anything was deliberately missed. In some cases, taxpayers were registered for Self Assessment and already had a Unique Taxpayer Reference (UTR), but their self-employment was not correctly linked to HMRC’s National Insurance system.
HMRC is now contacting some individuals it believes may be affected. At Digital Tax Matters, our experienced Accountants in Bedford can help you review your National Insurance record and understand what steps may be needed.
Why Could Self-Employed Taxpayers Have National Insurance Gaps?
For most self-employed taxpayers, Class 2 National Insurance became part of the Self Assessment system from the 2015–16 tax year.
However, being registered for Self Assessment did not always mean HMRC had correctly recorded someone as self-employed for National Insurance purposes.
For example, someone may already have had a UTR for another reason before becoming self-employed. They could then begin declaring business income through the same Self Assessment account without completing the additional National Insurance registration.
As a result, their tax return may have been processed correctly while their National Insurance record remained incomplete.
The issue may also affect people who intended to make voluntary Class 2 contributions but whose payments were not correctly allocated.
In this article, we’ll cover:
- Who Could Be Affected?
- Why Do National Insurance Gaps Matter?
- How Can You Check Your National Insurance Record?
- What Is HMRC Doing About Missing Class 2 Contributions?
- Should You Pay To Fill A National Insurance Gap?
- What If You Have Not Received A Letter?
- How Digital Tax Matters Can Help
Who Could Be Affected?
The issue mainly affects people who reported self-employed or partnership income for one or more tax years between 2015–16 and 2023–24 but were not registered to pay Class 2 National Insurance contributions.
This could include someone who already had a Self Assessment record and UTR before starting their business.
For example, a taxpayer may have declared £30,000 of self-employed income on their tax return, believing everything was handled correctly. At the same time, HMRC’s National Insurance system did not recognise them as registered for Class 2 contributions.
The original HMRC information suggests around 800,000 taxpayers could potentially be affected by the wider issue.
However, not everyone within this group will necessarily have a gap that affects their State Pension. Some people may already have qualifying years through employment or National Insurance credits.
Why Do National Insurance Gaps Matter?
Your National Insurance record helps determine your entitlement to the State Pension and certain other benefits.
Each tax year can potentially become a qualifying year through National Insurance contributions, credits or other qualifying circumstances.
Having a gap does not automatically mean you will lose State Pension entitlement, but missing years can affect how much you eventually receive.
This is particularly important for people approaching State Pension age.
Someone may discover that a year they believed was a qualifying year of entitlement has not been recorded correctly, potentially reducing the number of qualifying years on their record.
The current State Pension system normally requires at least 10 qualifying years to receive any new State Pension, although individual circumstances can vary.
This is why it is worth checking your record rather than assuming every self-employed year has been counted automatically.
How Can You Check Your National Insurance Record?
You can use GOV.UK to check your National Insurance record and see which years are complete and which contain gaps.
If you were self-employed between 2015–16 and 2023–24, look particularly closely at those years.
An incomplete year does not always mean there has been an HMRC error. Gaps can occur for several reasons, including low earnings, periods abroad, or years in which the relevant contribution requirements were not met.
However, if you remember being self-employed, completing tax returns and expecting the year to qualify, it may be worth investigating further.
You should also check your State Pension forecast.
This is important because filling a National Insurance gap does not always increase your eventual State Pension. You may already have enough qualifying years, or a particular payment may not improve your entitlement.
The key question is therefore not simply whether there is a gap, but whether filling it would benefit you.
What Is HMRC Doing About Missing Class 2 Contributions?
HMRC is contacting some taxpayers it believes may have been affected by the registration issue.
The relevant correspondence is known as letter LCL2REG2MM and relates to Class 2 National Insurance contributions and State Pension entitlement.
HMRC’s current guidance says the letter may be sent to people who declared self-employed or partnership income between 2015–16 and 2023–24 but were not registered to pay Class 2 National Insurance.
HMRC is currently prioritising people who are at or within two years of State Pension age, where the affected years are not already qualifying years.
If you receive one of these letters, check the years HMRC has identified and compare them with your own records.
HMRC also recommends contacting the Department for Work and Pensions before deciding whether to pay missing Class 2 contributions. This can help establish whether filling the year would actually increase your State Pension.
If you use an accountant, send them a copy of the letter. HMRC correspondence may be sent directly to you rather than your agent.
Should You Pay To Fill A National Insurance Gap?
Not automatically.
A gap in your National Insurance record does not necessarily mean making a voluntary contribution is worthwhile.
You may already be on track to receive the maximum State Pension, or the missing year may not increase your entitlement because of your individual National Insurance history.
You should therefore check your National Insurance record and State Pension forecast before making any payment.
Normally, voluntary National Insurance contributions can only be paid for the previous six tax years.
However, HMRC is relaxing this restriction for eligible taxpayers affected by this specific Class 2 registration issue, potentially allowing some people to correct gaps dating back to 2015–16.
This does not mean everyone can make payments for older years. The extended treatment relates specifically to the issue HMRC has identified, so eligibility needs to be confirmed first.
If you receive a letter, follow the instructions rather than making a general voluntary payment without checking how it should be allocated.
What If You Have Not Received A Letter?
Not receiving a letter does not necessarily mean your record is complete.
HMRC’s current correspondence is being targeted at particular taxpayers, including people at or approaching State Pension age.
If you were self-employed between 2015–16 and 2023–24, you can still review your National Insurance record yourself.
Check whether the years in which you were self-employed appear as qualifying years. If you find an unexpected gap, investigate why it is there before deciding whether to make any payment.
The Class 2 National Insurance rules have also changed since this period.
From 6 April 2024, self-employed people with profits at or above the relevant threshold are generally treated as having paid Class 2 contributions rather than having to make a separate payment.
This means the current HMRC issue mainly relates to historic years, but those older gaps can still affect future State Pension entitlement.
How Digital Tax Matters Can Help
National Insurance gaps can be easy to miss because they may relate to tax returns filed many years ago.
At Digital Tax Matters, we can help you review the tax years HMRC is asking about and compare them with your Self Assessment and National Insurance records.
If you receive a Class 2 National Insurance letter from HMRC, send us a copy so we can identify which years are affected and help you understand what HMRC is asking you to do.
We can also help check whether your self-employment was correctly registered during the relevant period and review the information shown in your historic tax records.
Before making any voluntary contribution, it is important to confirm that doing so will improve your State Pension entitlement.
Even if you have not received a letter, it may be worth checking your record if you were self-employed between 2015–16 and 2023–24 and are concerned that one or more years may be missing.
Check Your National Insurance Record Before A Gap Costs You
A missing National Insurance year may not become obvious until someone checks their State Pension forecast or approaches retirement.
HMRC’s current exercise shows why self-employed taxpayers should not automatically assume that submitting a Self Assessment return means every part of their National Insurance record is complete.
If you were self-employed between 2015–16 and 2023–24, review your National Insurance record and check whether the years you expected to qualify have been recorded correctly.
If HMRC contacts you about missing Class 2 contributions, establish whether making a payment would improve your State Pension before deciding what to do.
If you’ve received a letter from HMRC or believe there may be missing years in your National Insurance record, contact Digital Tax Matters today. We can help you review your records, understand what HMRC is asking for and work out the appropriate next steps.