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NIC during temporary period of absence

"Ordinary residence" rules to clarify

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Am dealing with an individual who has up to now lived and worked entirely in the UK, but is about to do a stint of about 3 years in Kenya working for a Kenya employer.  He wishes to protect his NI contribution record, if necessary by way of class 3 contributions.

We subscribe to CCH online tax manuals, which at paragraph 1020-350 provides the following guidance:

"the legislation provides that such an employee may nevertheless pay voluntarily if he has the following history of residence or contribution in the UK:
•residence for a continuous period of at least three years at any time before the period for which the contributions are paid; or
•three qualifying years of contribution at any time before that period.
This effectively ties eligibility to ordinary residence in the UK."

Say what?  Suppose we are considering making 2020-21 a qualifying paid up year:
Take the period (say) 06/04/1995 to 05/04/1998 throughout which he was both resident in the UK and had a full contribution history.
Is this a continuous period of at least three years? Answer yes.
Was that period "at any time before the period 2020-21"? Answer yes
By that logic he would be entitled to contribution in 2020-21 by reference to either of the two bullet points.

But that is surely nonsense.  My recollection of the old "ordinary residence" rules required that the period examined is at least somewhere in the proximity of the reference period.

So, what am I missing?

With kind regards

Clint Westwood

 

Replies (6)

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Euan's picture
By Euan MacLennan
27th Apr 2017 13:54

Why Class 3 NIC? He can pay Class 2 NIC - even the GOV.UK guidance says so!

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Replying to Euan MacLennan:
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By nogammonsinanundoubledgame
27th Apr 2017 14:08

He has no self employment history and will not be self empl0yed while abroad. That link seems to indicate that class 2 is available, but even that contains a link to further details which tend to imply (not well worded) that class 2 is only available to someone with some self-employment connection. Still looking at it, mind.

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By David Heaton
27th Apr 2017 17:26

If he leaves after 31 May, he will probably have paid enough Class 1 before he goes to make 2017-18 a qualifying year. You only need earnings subject to NICs of £5,876 to make the year qualify. (If the employer had been in the UK, he would have had a 52-week continuing liability, so would have paid Class 1 for the whole of 17-18, and some of 18-19, possibly enough to qualify that full year without voluntary top-up).

For 2018-19 and 2019-20, he would have been entitled to pay Class 2 instead of Class 3 without having been self-employed (there are special 'Persons Abroad Regulations' that explicitly permit this), but Class 2 is to be abolished at 5 April 2018, so he will have no choice but to pay Class 3. Sorry, Euan!

Leaving the UK for only three years will not break his ordinary residence for NI purposes, but that's not really relevant. The fact that somebody has lived in the UK for at least three years at some point does indeed entitle them to pay Class 3 - it's in the NI regulations. It allows long-term expats who will eventually come home to maintain their state pension.

He should wait until he's back in the UK, check his personal tax account the following year, and see if he needs to top up his NI with Class 3 then. He has six years to do so, although rates might rise if he waits more than a year.

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By nogammonsinanundoubledgame
27th Apr 2017 17:52

Hmm, he has not paid any NIC at all since about 2010, living off occupational pension income (he is below state pension age). Prior to that he was on class 1. So he may feel inclined to pay some top-up for the UK period anyway. Does that still entitle him to pay voluntary class 2 (as opposed to class 3) for 2017-18 if he goes abroad now?

Sorry, when I said he had worked entirely in the UK up to now I did not mean to imply continuously - only that he has not been abroad before now.

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Euan's picture
By Euan MacLennan
27th Apr 2017 17:58

Page 9 of HMRC's NI38 leaflet says:

"You can pay Class 2 NICs if you are employed or self-employed abroad and if you satisfy the following conditions:
• you have lived in the UK for a continuous 3-year period at any time before the period for which NICs are to be paid - (if you have lived or worked in another EEA country or in Turkey, time spent there may help you to meet this condition)
• before going abroad you paid a set amount in NICs for 3 years or more (this will be checked when you ask to pay Class 2 NICs)
immediately before going abroad you were ordinarily an employed or self-employed earner in the UK

So, I think the answer is No - he cannot pay Class 2 NIC for 2017/18 on going abroad to work.

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Replying to Euan MacLennan:
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By nogammonsinanundoubledgame
27th Apr 2017 17:54

Ah - he might be scuppered by the final condition; that IMMEDIATELY before going abroad he needed to be earning.

Sorry, I realise you did not have that info when responding. My bad.

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