Class 2/4 requirements to get a year

Is it the amount or the period?

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Hi all

So, client was SE until late March 2021 when they ceased.  Software calculated full year of class 2, but HMRC have reduced this by a week, so they haven't paid a full years Class 2.

But they HAVE paid several thousand pounds of Class 4, so my question is, does the missing week stop the year qualifying, or does the fact they have paid more than a full year's of Class 2, partly via Class 4, mean they are fine?

I know for Class 1 so long as you earn over the LEL you get the year, regardless of timing, but I'm realising I don't know if the same is true for 2/4 (I feel like I was once told 4 doesn't actually get you your year, only 2 does, in which case I intend to change the cessation date to 05/04/21).

Thanks all!

 

Replies (11)

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By The Dullard
16th Jul 2021 09:22

Class 4 NIC is just a tax. It does "earn" any benefits. If you don't have 52 weeks class 1/2 contributions it doesn't count, unless you have NIC credits (eg because you're claiming child benefit).

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By Wanderer
16th Jul 2021 09:28

As said, Class 4 is irrelevant to qualifying years.

Forget about changing the year end etc. Just advise the client to pay a week of Class 3.

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Replying to Wanderer:
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By Hugo Fair
16th Jul 2021 11:17

... which, before anyone wonders, is not inconsistent advice with Dullard's "If you don't have 52 weeks class 1/2 contributions it doesn't count".
Classes 1 & 2 are the earnings-based contributions that count; whereas any class 3 contributions are voluntary payments made specifically to fill or avoid any gaps in an individual's NI record.
[And don't get me started on 52 weeks doesn't equal a year!]

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Replying to Wanderer:
Quack
By Constantly Confused
16th Jul 2021 14:39

Wanderer wrote:

Forget about changing the year end etc. Just advise the client to pay a week of Class 3.

Turns out it is two weeks (too hot to count clearly!), still worth it for another £24.50, assuming the client wants/needs the year of course!

I just feel a bit daft that I didn't suggest the client kept the business alive for another 2 weeks as easy tax planning to save them the £24.50.

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Replying to Constantly Confused:
RLI
By lionofludesch
16th Jul 2021 18:38

Constantly Confused wrote:

Wanderer wrote:

Forget about changing the year end etc. Just advise the client to pay a week of Class 3.

Turns out it is two weeks (too hot to count clearly!), still worth it for another £24.50, assuming the client wants/needs the year of course!

I just feel a bit daft that I didn't suggest the client kept the business alive for another 2 weeks as easy tax planning to save them the £24.50.

It wouldn't be the whole £24.50 would it? It would be the diff between Class 2 and Class 3.

I'd just tell him to pay the Class 3. It's buttons.

This is assuming he didn't get a job in those last 2 weeks.

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By paul.benny
16th Jul 2021 11:34

Check the online contribution record. You (currently) need 35 full years to qualify for state pension. You/client need to assess likelihood of reaching that with a missing week - and then decide whether to pay. FWIW, you've probably already spent more billable time than the Class 3 required to make up a missing week.

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Replying to paul.benny:
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By Not Anonymous
17th Jul 2021 10:47

35 years is only for people starring their State Pension journey from 2016, most people are under transitional rules which mean 35 years has little relevance.

You could reach the standard new State Pension amount with fewer years or in some cases can need 40+ years to get there.

Key thing is to check what has been accrued to date on gov.uk, ensuring the whole forecast is read, not just the headline figure.

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Replying to Not Anonymous:
RLI
By lionofludesch
17th Jul 2021 10:57

Not Anonymous wrote:

35 years is only for people starring their State Pension journey from 2016, most people are under transitional rules which mean 35 years has little relevance.

Well, I don't know about that. This seems to say that you calculate the pension under old and new schemes and are paid the higher of the two.

Valuing your National Insurance contributions and credits made before 6 April 2016
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension.

Your starting amount will be the higher of either:

the amount you would get under the old State Pension rules (which includes basic State Pension and Additional State Pension)
the amount you would get if the new State Pension had been in place at the start of your working life

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Replying to lionofludesch:
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By Not Anonymous
17th Jul 2021 12:00

Say you have someone who has worked in local government from leaving school and always been in a contracted out pension for 37 years. Their starting amount in April 2016 would have been maybe £145

So would need another few years to reach the standard new State Pension amount.

This is quite a good guide, see Case Studies D and G

https://www.royallondon.com/media/good-with-your-money-guides/the-new-st...

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Replying to Not Anonymous:
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By Hugo Fair
17th Jul 2021 13:25

Assuming in your example that the contracted-out scheme was the LGPS (which would be logical) ... then they'd be looking forward to a stonking good pension as it's still one of the most generous DB schemes. In which case the State Pension would only be needed for paying tips and the like!

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Replying to Hugo Fair:
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By Not Anonymous
17th Jul 2021 15:01

Hugo Fair wrote:

Assuming in your example that the contracted-out scheme was the LGPS (which would be logical) ... then they'd be looking forward to a stonking good pension as it's still one of the most generous DB schemes. In which case the State Pension would only be needed for paying tips and the like!

True but State Pension is hard to beat for investment value.

In this case the extra £20-£30 payable could add £5.13/week to the State Pension.

Payable for maybe 40+ years. And inflation proofed to boot.

Hard to beat even if the extra was only say £2/week (in extreme circumstances) after additional tax payable.

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