Owner Kate Upcraft Consultancy Ltd
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Look after your NIC record: No one else will

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.

7th Jan 2020
Owner Kate Upcraft Consultancy Ltd
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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.

NI credits

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.

Parents

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.

Replies (18)

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Chris M
By mr. mischief
07th Jan 2020 18:09

A very good article. I can confirm the importance of this. I have helped at least 10 clients fill in gaps over the years. All of these gaps were caused by HMRC processing failures.

In the most blatant case, for one client 3 P60s in a row which I had filed on time had not been added to his record, which was 3 years short. I wrote to HMRC with copies and after about 10 weeks all 3 years had been added.

I encourage all clients to check every few years.

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Jennifer Adams
By Jennifer Adams
07th Jan 2020 18:29

May I refer everyone reading this to the comments section under Rebecca's latest post? Saves me reposting a comment!

https://www.accountingweb.co.uk/any-answers/do-your-clients-have-lost-ye...

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By Not Anonymous
07th Jan 2020 19:18

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.

Do they really all need 35 years to get the maximum? Doesn't the transitional protection mean some will get to the maximum with less than 35 years?

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By Not Anonymous
07th Jan 2020 19:20

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

Not forgetting the (much cheaper) voluntary Class 2 option now available.

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By wyoming
08th Jan 2020 10:03

Thank you. This is a very important (and often neglected) area. Now that Class 2 NICs are no longer paid separately, I can only see worsening problems for the self-employed with their NI/state pension records. I've lost count of the number of people (within the profession and outside) who think that if they are filling in self-employment pages as part of the SA process then the Class 2 NI position will just fall into place. It won't, of course, unless the NI part of HMRC have the person separately noted as self-employed - usually via the submission of form CWF1 (or SA401 if self-employed via a partnership).

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Replying to wyoming:
By Charlie Carne
08th Jan 2020 11:12

A very simple thing that the OTS could persuade HMRC to implement is a tick-box on the self-employed pages of the income tax return to make a claim to be treated as self-employed for Class 2 NI purposes. Or, indeed, make the completion of the S/E pages the sole indicator of liability to Class 2 NI.

Thanks (2)
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By pauljohnston
08th Jan 2020 11:05

@wymoing If the client is not registerd for self-employment then the tax calculation from HMRC will not show the Class 2 deduction. If using proprietary software HMRC will send out a revised calculation.

The problems that I see are when no NIC clss 2 are deducted because of low earnings. The non-taxpayer has to make the contribution another way.

For me I recommend that every new client gets a BR19 and mails this in to get a paper statement. The statement shows clearly if you have to make up extra years and then how to do it.

It has been suggested but I cant remember where that the personal tax account statement can be incorrect.

Thanks (1)
Replying to pauljohnston:
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By leon0001
08th Jan 2020 11:20

To pay voluntary class 2 NIC, remember to put a cross in box 101 on SEF 5.

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Replying to leon0001:
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By wyoming
08th Jan 2020 15:55

Yes agreed, HMRC will issue an SA302 form to remove the Class 2 NI which should at least flag up the problem and prompt some action. leon0001 beat me to the point that Class 2 NI should be taken by HMRC if the "voluntary payment" box is ticked in lower earning s/e cases - assuming they are registered as s/e in the first place!

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By pauljohnston
08th Jan 2020 11:05

@wymoing If the client is not registerd for self-employment then the tax calculation from HMRC will not show the Class 2 deduction. If using proprietary software HMRC will send out a revised calculation.

The problems that I see are when no NIC clss 2 are deducted because of low earnings. The non-taxpayer has to make the contribution another way.

For me I recommend that every new client gets a BR19 and mails this in to get a paper statement. The statement shows clearly if you have to make up extra years and then how to do it.

It has been suggested but I cant remember where that the personal tax account statement can be incorrect.

Thanks (0)
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By leon0001
08th Jan 2020 11:15

A few years ago, my then secretary, who was a couple of years from retiring, contacted HMRC to see how much state pension she would get.
She was horrified to discover that there was no record of her or her NI number.
It transpired that, when she started work as a teenager, her NI number was cancelled. She had a twin sister who also lived at her parents' home and whose name also began with an M. (Same address, same initial and surname and same date of birth - must be a duplication...)
She had worked before she got married and resumed work when her children were older.
Not surprisingly, she no longer had her P60's from her previous employments.
She was then asked to contact her previous employers to obtain duplicates. This was a bit difficult.
The first employer, a sole practising chartered accountant, was long dead. The next was a major company which had spectacularly gone bust some ten years previously.
In the absence of any records, she was asked to guess what went in the gaps. This guess was accepted.

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By Ian McTernan CTA
08th Jan 2020 11:40

This is something I encourage all clients to do on a regular basis - and all they need to do is search for 'state pension entitlement' to get started.

It's not surprising at how many gaps we find in people's records and I've lost count of how many years we've had corrected by HMRC once we point it out to them.

It's another example of the lack of joined up systems within HMRC.

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By dgilmour51
08th Jan 2020 11:53

A most informative article.
But its all very well for legislators to effectively dump this sort of stuff on to the shoulders of 'the man on the Clapham omnibus'.
Firstly, the history of the NI deduction schemes is one of the more arcane areas of taxation [for tax it sureley is].
One only has to think of SERPS, an ephemeral distortion within which were variable rates, also depending if you were contracted in or contracted out - how many lay people actually understood any of that stuff?
By my rekoning there are circa currently 15 different 'states' of NI spread over the 4 Classes, in addition there are potentially NIC credits. There will be many people, for example people who work both self-employed and employed, intermittently, for whom this is all a complete nightmare, with responsibility for the amounts paid being 'shared' between payers and payees; HMRC is the only 'common point of contact'.
Is it really reasonable or fair to expect average Joe Public to have a full grip on all of this?

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By k743snx
08th Jan 2020 13:19

This article is one of the best adverts for merging PAYE and NIC systems that I've ever seen.

Thanks (4)
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By dmmarler
08th Jan 2020 17:07

This is not the only area where the individual has to keep their own records and check everything. State pension received is populated automatically into HMRC's system, but to check it the individual has to (1) find the notification from November c 2 years before, and (b) compute from that notification of a myriad of items the weekly amount which is payable, (c) calculate how much that should be for the year, and finally (d) check how much has actually been received through the bank account. Needless to say, getting anyone to take ownership of any queries is virtually impossible.

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By Bryan T
09th Jan 2020 00:15

Hi Kate
A lot of records we are talking about would be before the implementation of RTI. How do we get those checked and corrected please?

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Replying to Bryan T:
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By kestrepo
09th Jan 2020 13:57

You could log in using your Government Gateway Id to the links below to check your contributions and eligibility.

https://www.gov.uk/check-national-insurance-record

https://www.gov.uk/check-state-pension

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By pauljohnston
16th Jan 2020 08:20

@kestrepo As I indicated in my earlier post their has been a suggestion that the online pension forecast is incorrect and for that reason I suggest Form BR19
@ k743snx This would not help since it would penalise all those with non-paye income including pensioners and company owners. Indeed I am not sure how you would integrate £2 a month approx into the tax system. Osbourne suggested getting rid of Class 2 NIC but when the records were reviewed it was put off. An answer may be is to have a new sytem just to pay for state pension and the rest from general taxation. Never a vote winner and if the system was run by civil servants in 20 years it would be the same mess again because of politicans interferring

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