We are often asked to comment on the state benefits you will or wont be able to claim if you are self-employed and pay the basic Class 2, and the earnings related Class 4 contributions.

Class 2 contributions will qualify you for most of the benefits that an employed person can claim. (Employed persons pay Class 1 contributions.) The two main exceptions are earnings related state pension and contribution-based Jobseekers allowance.

If you are self-employed and are unable to work due to illness you should be able to claim incapacity benefit. However you may disqualify yourself if you make occasional visits to your workplace. You may also have difficulties if you work from home, proving that you do no work.

Class 4 contributions do not count towards any benefits (in other words, its just tax).

Retirement pension
Two useful points. You may be able to combine your contribution record with your husband’s, wife’s or civil partner’s contribution record if:

• you are widowed
• You are the surviving partner of a civil partner who has died
• you are divorced
• your civil partnership has been dissolved

The number of years contributions required to qualify you to a basic state retirement pension is 30 years if you are due to reach retirement age on or after 6 April 2010.

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A guide to help you determine if NI numbers and VAT numbers are valid.

Certain PAYE returns (P35, P11D) will be rejected by HMR&C if a National Insurance number (NINO) is incorrectly displayed. Valid numbers always follow the same format, two letters, followed by six numbers, followed by a single letter. i.e. AB123456D.

The following information sets out the valid alpha prefixes and suffixes. If you are at all uncertain that you have been given a correct NINO, you should check with your local tax office.

Valid National Insurance Number Prefixes:

AA, AB, AE, AH, AK, AL, AM, AP, AR, AS, AT, AW, AX, AY, AZ BA, BB, BE, BH, BK, BL, BM, BT CA, CB, CE, CH, CK, CL, CR EA, EB, EE, EH, EK, EL, EM, EP, ER, ES, ET, EW, EX, EY, EZ GY HA, HB, HE, HH, HK, HL, HM, HP, HR, HS, HT, HW, HX, HY, HZ JA, JB, JC, JE, JG, JH, JJ, JK, JL, JM, JN, JP, JR, JS, JT, JW, JX, JY, JZ KA, KB, KE, KH, KK, KL, KM, KP, KR, KS, KT, KW, KX, KY, KZ LA, LB, LE, LH, LK, LL, LM, LP, LR, LS, LT, LW, LX, LY, LZ MA, MW, MX NA, NB, NE, NH, NL, NM, NP, NR, NS, NW, NX, NY, NZ OA, OB, OE, OH, OK, OL, OM, OP, OR, OS, OX PA, PB, PC, PE, PG, PH, PJ, PK, PL, PM, PN, PP, PR, PS, PT, PW, PX, PY RA, RB, RE, RH, RK, RM, RP, RR, RS, RT, RW, RX, RY, RZ SA, SB, SC, SE, SG, SH, SJ, SK, SL, SM, SN, SP, SR, SS, ST, SW, SX, SY ,SZ TA, TB, TE, TH, TK, TL, TM, TP, TR, TS, TT, TW, TX, TY, TZ WA, WB, WE, WK, WL, WM, WP YA, YB, YE, YH, YK, YL, YM, YP, YR, YS, YT, YW, YX, YY, YZ ZA, ZB, ZE, ZH, ZK, ZL, ZM, ZP, ZR, ZS, ZT, ZW, ZX, ZY

The characters D, F, I, Q, U and V are not used as either the first or second letter of a National Insurance Number prefix.

Valid National Insurance Number Suffixes:

The final alpha of the NINO should be A, B, C, or D.
VAT Registration numbers

There are occasions when the validity of a VAT registration number is critical. Particularly:

• When you make a supply to a registered European Union trader, or
• When you receive an invoice from a supplier on which VAT has been added.

Supply to EU trader

If it appears that the VAT number you have been given is incorrect, you should charge VAT rather than exempt the supply.

Purchase of goods/services from registered UK trader.

One of the aspects that qualifies a supply for a reclaim of input tax charged, is if the invoice shows a valid VAT registration number. Although HMR&C have discretion to allow a deduction even if the number is wrong, the discretion only applies in certain circumstances.

How to check a VAT registration number.

There are two ways to check the validity of a VAT number:

1. Call HMR&C 0845-010-9000.
2. A more hi-tech solution, visit the Europa web site at http://ec.europa.eu/taxation_customs/vies/vieshome.do, select the correct member state and enter the VAT number you have been given. This will only confirm if the number is a valid registration number. There is no way to use this service to confirm the number belongs to your customer/supplier

Davies McLennon are Stockport Accountants

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• A loan itself is not remuneration for National Insurance purposes. Consequently no Class 1 contributions are due on the granting of a loan, or on the cash equivalent of a low interest or interest free loan.
• Class 1a contributions may become due if the loan is waived, written off, or if the employee/director does not pay interest on the loan at an amount equivalent to the “official rate”.
• An advance of pay is treated as a loan - any tax or National Insurance becomes deductible when the normal pay date arises.
• Loans provided to employees who are unable to work due to injury or accident will be subject to a National Insurance charge unless the loan is repayable whatever the outcome of the employee’s claim for damages.
• These rules apply to directors and other employees.

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