It’s essential that a person’s national insurance contribution record is accurate so the correct state pension is paid on retirement. But HMRC does not check the NIC paid figures, so it’s down to the taxpayer to do so.
With the income tax system, we have the comfort of an annual reconciliation process. Most taxpayers believe that their national insurance contributions (NIC) record gets the same attention from HMRC, but it doesn’t.
I recall Ruth Owen, director general of personal tax for HMRC, told the Public Accounts Committee when real time information (RTI) was introduced that there was no need to reconcile NICs annually as HMRC “had 40 years to do that”.
The lack of priority given to NICs is indicated up by the fact that your NIC record is hidden behind the Personal Tax Account (PTA) portal – no mention of NI in the title.
Too often I hear cases of individuals reaching state pension age and suddenly finding there are gaps in their NIC record, so they don’t receive the state pension they were expecting. As tax professionals, we need to encourage people to own their NI data and check it every year.
Spot the gaps
If on checking your NIC record there is a gap that doesn’t look right, how do you start to correct it?
Perhaps the RTI data from your employer hasn’t been correctly recorded. You can see all the FPSs that HMRC has received in the PAYE pages of the PTA. Are all the payments you received there?
Does the total of NIC at the bottom of the page equal the totals on your P60 for the year? If not and it’s later than the September after tax year end, it’s worth getting in touch with HMRC to find out what has gone wrong with the data.
This is particularly important if there have been any corrections to your data: for example after a payroll merger, TUPE transfer, change of software or a new payroll agent.
We know that although HMRC correct tax records where duplicate employee records are created, NI can be an afterthought unless it is prompted to act.
If you are in receipt of certain state benefits you will get automatic NI credits to provide you with a qualifying year for NIC, where your earnings aren’t high enough for that year to otherwise qualify.
The state benefits that provide eligibility for NIC and which are pertinent to employees are:
- employment and support allowance
- maternity allowance
- child benefit for a child under 12 since April 2010 (prior to April 2010 home responsibility protection could provide credits for children under 16)
- carer’s allowance or income support
- working tax credit with a disability premium so your earnings’ capacity is restricted
- universal credit.
Employees who are about to become parents need to know that the child benefit recipient can transfer their NI credits to a non-working partner. Alternatively, the non-working partner can choose to make the child benefit claim. New mums often make the child benefit claim and aren’t aware of the NIC implications.
Those who have chosen not to claim child benefit because of the claw-back under the high-income child benefit charge also need to be aware of the NIC implications.
The prudent thing to do is to make a claim for child benefit to instigate the NI credits for the claimant but to opt out of the payments to avoid the tax charge. This will also ensure that the child concerned gets a NI number when they approach their 16th birthday. No child benefit claim means no NI credits and no NI number!
If you need to transfer NI credits from a child benefit claim or enquire why your record has missing years, for this reason you should complete form CF4111A.
Apply for credits
Some credits have to be applied for, such as in these situations:
- when in receipt of SSP, SMP, SAP or ShPP only, so earnings for the year are below the lower earnings limit
- foster carer (kinship carer in Scotland) which restricts your earnings’ capacity
- on jury service for a long time
- partners of members of the armed forces
Do the maths
Individuals who reach state pension age from April 2016 need 10 qualifying years to get any state pension and 35 qualifying years to get the maximum pension. As there was transitional protection for those who had worked before April 2016, those individuals need to look at their NIC record to see what has been assessed as their current number of qualifying years.
If you were contracted out of SERPS or the state second pension at any time before April 2016, this will have reduced the value of your single-tier pension. However, any years worked since April 2016 when full contributions have been paid will start to effectively lower the contracted-out reduction.
Don’t leave it too late
Paying Class 3 voluntary NIC can help those who have a reduced single-tier state pension as a result of contracting out or gaps in their record. However, as additional NIC can normally only be paid for up to six years prior to the current year, the decision to pay class 3 NIC can’t be left until the individual reaches state pension age. Realising there are NIC gaps at that point may be too late.