NIC and the multiple employments trap

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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.

Example

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:

Premises

  1. Are these shared?
  2. If so, and to what extent?
  3. How are the charges for fuel, rates, water, etc. discharged?
  4. Does one company pay or do each share a proportion of the cost?
  5. What is the proportion for each company?
  6. How is this decided?

Staff

  1. Do the companies have staff in common?
  2. If so, whom?
  3. If staff are shared, are they aware of this?
  4. By which company are they engaged or does their contract of services relate to all the companies as appropriate?
  5. By which company are they paid?
  6. If a person engaged by one company undertakes work for another, is the latter charged for their services?

Equipment

  1. Does each company have separate equipment?
  2. Is any equipment shared?
  3. Do any of the companies own vehicles?
  4. If so, are these used solely by the company which owns them or do the other companies also make use of them?
  5. How is fuel purchased and the vehicles maintained?

Accounts

  1. Are separate accounts prepared?
  2. Does invoicing take place between the companies?

Clients

  1. 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

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]

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15th Dec 2018 08:44

So if you are paid (say as a Director) 6,000 in March of the tax year and that is your only pay from that employment in the tax year will that give you a full qualifying year; or does the fact you weren’t paid in the previous 11 months mean you don’t get a full years credit?

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15th Dec 2018 12:21

Directors are different as they have an annual earnings period so it will be a qualifying year. If it is an ordinary employee it wont.
Exception: In the year of commencement for the director the earnings period is time apportioned. This is not the case in the year of leaving

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to Marion Hayes
15th Dec 2018 17:35

Which just goes to show, yet again, how the ordinary worker can get trashed, but the more elite are safe.

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to SteLacca
17th Dec 2018 16:00

If you understood why the rules are as they are, you might reconsider your view of the 'elite' here, who are overwhelmingly directors in SMEs, not employed directors. They can control how and when they are paid. Before Gordon Brown 'simplified' matters with the extra earnings threshold and deemed contributions, if they wanted to minimise their NICs, directors could pay themselves below the LEL for 51 weeks and then pay themselves a huge sum in excess of the UEL (and back in the mists of time, the UEL applied to employers too). The annual earnings period for directors, and the pro rata EP for new directors, is an anti-avoidance measure, to stop your 'elite' from manipulating the system, and from paying less in NICs than an employee with exactly the same earnings. 'Trashed' indeed. The knock-on that their NICs get them a qualifying contribution record doesn't seem that unfair to me, in light of their inability to dodge the liability.

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19th Dec 2018 10:56

It will be interesting to see how this pans out with the new IR35 regime.
SMEs have a lot of recurrent payments arising from their Ltd Cos such as salary, PL and PI insurances etc.
If they are adjudged for a gig to be an employee, will that earning be aggregated?
Given that a director is not necessarily an employee, it is also necesary to differentiate between directors emoluments and salary arising from a director's contract of employment with the company, if any.

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19th Dec 2018 11:12

I told one chap who was struggling to quit his £24 k year a job and get 3 x 8k a year part time jobs.

Same work but 12% of 16k = 1920 extra in his pocket and full NIC contributions.

At that level, it makes all the difference.

I thought this article was going to counter that, but it confirms its correct.

Yep directors earning periods are handy, although under RTI, you should really just be popping through monthly salary for the directors.

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19th Dec 2018 16:37

All this nonsense would be eliminated if NI for employees was aggregated with income tax, and the LEL was the same as the personal allowance. But that is too simple.

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