Sarah Bradford reviews the national insurance contributions rules for employees who hold several concurrent employments, and whether their pay from those jobs should be aggregated for NIC purposes.
It is not uncommon for individuals to work in two or three part-time jobs concurrently, so it’s important for employers and individuals to understand when the earnings from those separate employments should be aggregated to calculate the employee’s and employer’s NIC payable. The Louise Willmot case (TC06789) highlights the problems in determining when the requirement to aggregate arises.
Facts of the case
The case concerned an appeal against an HMRC decision as to the amount of Class 1 and Class 3 contributions paid by Willmot. Having requested a pension forecast from the Department for Work and Pensions, Willmot became concerned that the forecast pension was less than she expected, so she asked for information on paying Class 3 contributions.
Willmot also queried the recorded contributions for some years, as she believed she should have been given full credit for those years. Her own records showed that her earnings for the years in question were more than the lower earnings limit (LEL). In reply, HMRC explained that a person is required to earn more than the LEL in each week or month of the tax year for the year to be a qualifying year; the fact that gross earnings for the year were more than the annualised LEL is not sufficient.
Willmot worked at two care homes during the relevant period – one in Eastbourne and one in Heathfield. The homes were both Catholic run and co-operated regarding the allocation of placements for Catholic residents and the use of temporary staff. Working in both homes meant that the appellant’s total earnings exceeded the lower earnings limit.
The tribunal found that the employments were associated and the earnings from each employment should be aggregated for national insurance purposes.
The multiple employments trap
The nature of national insurance is such that it is worked out separately for each earnings period and for each employment, rather than by reference to total earnings for the tax year. This means that an employee may have earnings in excess of the annualised LEL for a tax year, but that the year is not a qualifying year.
This may be because the earnings did not accrue evenly throughout the tax year, such that in some weeks or months the earnings were below the LEL. Alternatively, the situation may arise because an employee has two or more part-time jobs, and while the earnings in total exceed the annual LEL, each job has total earnings below that threshold.
Throughout 2018/19 John has two part-time jobs. The jobs are unrelated. In one job he earns £50 per week and in the other job he earns £80 per week.
Although his total earnings from both jobs of £130 per week are more than the LEL of £116 per week for 2018/19, John earns less than this in each job. Consequently, he pays no national insurance and 2018/19 is not a qualifying year.
By contrast, Jack has one job throughout 2018/19 earning £120 a week. As his earnings are above the LEL of £116 per week for 2018/19 (but below the primary threshold of £162 per week), Jack is treated as paying notional contributions at a zero rate, and consequently 2018/19 is a qualifying year.
Although John’s total earnings for 2018/19 are more than Jack’s, he does not get the benefit of having paid notional NI contributions. Had John’s employers been “carrying on business in association” with each other, his earnings would have been aggregated and he would have had a qualifying year.
Requirement to aggregate
To prevent artificial fragmentation of jobs to reduce the amount of National Insurance payable, rules require earnings from each job to be aggregated if the employers are carrying on business in association with each other (SSCBA 1992, Sch. 1, para. 1). Businesses are treated as “carrying on business in association” if their businesses serve a common purpose and to a significant degree, share things such as accommodation, personnel or customers.
In the appendix to the first tier tribunal decision in Louise Willmott, the judge set out the following questions to help employers decide if businesses were carrying on in association which each other:
- Are these shared?
- If so, and to what extent?
- How are the charges for fuel, rates, water, etc. discharged?
- Does one company pay or do each share a proportion of the cost?
- What is the proportion for each company?
- How is this decided?
- Do the companies have staff in common?
- If so, whom?
- If staff are shared, are they aware of this?
- By which company are they engaged or does their contract of services relate to all the companies as appropriate?
- By which company are they paid?
- If a person engaged by one company undertakes work for another, is the latter charged for their services?
- Does each company have separate equipment?
- Is any equipment shared?
- Do any of the companies own vehicles?
- If so, are these used solely by the company which owns them or do the other companies also make use of them?
- How is fuel purchased and the vehicles maintained?
- Are separate accounts prepared?
- Does invoicing take place between the companies?
- Do the companies have clients in common?
The requirement to aggregate does not apply where it is not reasonably practicable to do so.
About Sarah Bradford
Sarah Bradford BA (Hons) ACA CTA (Fellow) is the director of Writetax Ltd (www.writetax.co.uk) and its sister company, Writetax Consultancy Services Ltd. She writes widely on tax and National Insurance contributions and is the author of National Insurance Contributions 2015/16 published by Bloomsbury Professional. She can be contacted at [email protected]