Category: National Insurance

If you move abroad, it can often be advantageous to continue paying your UK National Insurance Contributions (NICs) in order to preserve your entitlement to the UK State Pension and other benefits. If you are working in the European Economic Area (EEA), the rules depend on your situation (see below). The EEA includes all EU countries as well as Iceland, Liechtenstein and Norway. The same rules apply in Switzerland.

The rules are as follows:

• If you work for an employer in the EEA: You will normally pay social security contributions in the EEA country you work in instead of NICs. This means you will be covered by that country’s social security laws and may be entitled to benefits, but your entitlement to benefits in the UK (for example State Pension) may be affected as there’ll be a gap in your NICs.
• If your UK employer sends you to work in the EEA: You might be able to carry on paying NICs if you are abroad for up to 2 years. This means you won’t have to pay social security contributions abroad. There is a special form which your employer must complete to notify HMRC.
• There are special rules if you are self-employed or working in two or more EEA countries (including the UK).
• Some countries have a Reciprocal Agreement (RA) or Double Contribution Convention with the UK. These countries include the USA and Japan. You will usually pay social security contributions in that country instead of NICs.
• For all other countries. You can usually continue paying NICs for the first 52 weeks you are abroad and if you meet the qualifying conditions.

Of course, depending on the Brexit outcome, the rules for EU/EEA countries could be open to change.

Class 1A NICs are paid by employers in respect of most benefits in kind provided to employees, for example, the use of a company car. There are no Class 1A employee contributions payable.

Class 1A NICs are due in respect of most benefits provided to:

• directors and certain other persons in controlling positions,
• employees,
• members of the family or households of the above.

Where a benefit is provided as part of a salary sacrifice or other optional remuneration arrangement (OpRA), special rules apply and the Class 1A NICs are calculated as a percentage of the relevant chargeable benefit.

Certain conditions must apply before Class 1A NICs are due. These conditions are that the:

• benefit must be from, or by reason of, an employee's employment and must be chargeable to Income Tax under ITEPA 2003 on an amount of general earnings as defined at Section 7(3) ITEPA 2003;
• employment must be 'employed earner’s employment' under social security law and employment as a director or an employee;
• benefit must not already attract a Class 1 NIC liability.

There is a statutory exemption for qualifying trivial benefits in kind costing £50 or less. The tax-free exemption (and therefore exemption from Class 1A NIC) applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given to employees. It also applies to any other BiK classed as 'trivial' that falls within the exemption. An annual cap of £300 is applicable to directors or other office-holders of close companies and to members of their families or households.

It was announced as part of the Autumn Budget 2018 measures that access to the Employment Allowance was to be restricted. From 6 April 2020, the £3,000 NIC Employment Allowance will only be available to employers with employer NIC liabilities of under £100,000 in the previous tax year. Connected employers will have their contributions aggregated for this purpose.

The draft legislation necessary to put this change in place has recently been published and is open for comment until 20 August 2019. The accompanying draft statutory note sets out the information requirements for employers claiming the Employment Allowance from April 2020. A final version of the regulations and guidance is expected to be published in October 2019.

There are currently a number of excluded categories where employers cannot claim the employment allowance. This includes:

• Limited companies with a single director and no other employees;
• Persons employed for personal, household or domestic work, such as a nanny or au pair (unless they are a care or support worker);
• You are a public body or business doing more than half your work in the public sector;
• You are a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary.

There are many taxpayers who have reached the State Pension age and continue to work. In most cases they no longer need to pay any National Insurance Contributions (NICs).

At State Pension age, the requirement to pay Class 1 and Class 2 NICs on employed or self-employed earnings ceases. However, you will remain liable to pay any NICs that were due to be paid on earnings before you reached the State Pension age. If you continue working, you usually need to provide your employer with proof of your age to make sure you stop paying National Insurance. If you would rather not provide proof of age to your employer you can request a letter (known as an age exception certificate) from HMRC confirming, you have reached State Pension age and are no longer required to pay NICs. Your employer remains liable to pay secondary Class 1 employer NICs.

Certain jobs have a compulsory retirement age after which you are no longer allowed to work. An employer must have a good reason for setting a compulsory retirement age, for example, if there is an age limit set by law, or the job requires certain physical abilities. However, apart from these special circumstances there is no official retirement age and you usually have the right to work as long as you wish. There is also no requirement to provide your date of birth when applying for a new job.

If you are self-employed you will need to pay Class 4 NICs for the remainder of the year in which you reach State Pension age but will be exempt from the following year. We can help you check if you think you may have overpaid NICs and arrange for a refund of any overpaid NICs.

The National Insurance Contributions (NICs) Bill was introduced into Parliament on 25 April 2019. The Bill will see the introduction of a new 13.8% Employer Class 1A NIC charge on termination payments and sporting testimonials that are already liable to Income Tax from 6 April 2020. The government announced this change at Budget 2018.

This means that from next April, termination payments over £30,000 and sporting testimonials of more than the £100,000 limit will be subject to Employer Class 1A NIC charge. These changes will ensure that termination awards and sporting testimonials have the same Income Tax and NIC treatment. It will also close a commonly used loophole where employers disguise final payments as compensatory termination payments that benefit from the current NIC exemption.

The government had previously confirmed that the £30,000 tax free exemption on termination payments would be retained but that certain payments will no longer fall within the allowance. It is expected that any employer NIC ue on these termination payments will be collected in ‘real-time’, as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC.

In many circumstances it can be beneficial to make voluntary Class 2 National Insurance Contributions (NICs) to increase your entitlement to benefits, including the State or New State Pension if you are self-employed.

You might want to consider making voluntary NICs because:

• you’re close to State Pension age and do not have enough qualifying years to get the full State Pension


• you know you will not be able to meet the qualifying years you need to get the full State Pension during your working life


• you’re self-employed and do not have to pay Class 2 contributions because you have low profits or live outside the UK, but you want to qualify for some benefits

There is also a specific list of jobs where class 2 NICs are not payable. These are:

• examiners, moderators, invigilators and people who set exam questions


• people who run businesses involving land or property


• ministers of religion who do not receive a salary or stipend


• people who make investments for themselves or others – but not as a business and without getting a fee or commission

If you fall within any of these categories it can be beneficial to get a State Pension forecast and examine whether to make voluntary Class 2 NICs to make up missing years.

If you move abroad it can often be advantageous to continue paying your UK National Insurance Contributions (NICs) in order to preserve your entitlement to the State Pension and other benefits. If you are working in the European Economic Area (EEA) the rules depend on your situation. The EEA includes all EU countries as well as Iceland, Liechtenstein and Norway. The same rules apply in Switzerland.

The rules are as follows:

• If you work for an employer in the EEA. You’ll normally pay social security contributions in the EEA country you work in instead of NICs. This means you’ll be covered by that country’s social security laws and may be entitled to benefits there, but your entitlement to benefits in the UK (for example State Pension) may be affected as there’ll be a gap in your NICs.


• If your UK employer sends you to work in the EEA. You might be able to carry on paying NICs if you’re abroad for up to 2 years. This means you won’t have to pay social security contributions abroad. There is a special form which your employer must complete to notify HMRC.


• There are special rules if you are self-employed or working in two or more EEA countries (including the UK).


• Some countries have a Reciprocal Agreement (RA) or Double Contribution Convention with the UK. These countries include the USA and Japan. You will usually pay social security contributions in that country instead of NICs.


• For all other countries, you can usually continue paying NICs for the first 52 weeks you’re abroad if you meet the qualifying conditions.

Of course, depending on what transpires with Brexit, the rules for other EU countries could be open to change.

There are two types of National Insurance Contributions (NICs) payable by most self-employed people. These are known as Class 2 NICs and Class 4 NICs. Class 2 NICs are paid by all self-employed taxpayers unless they qualify for the small earnings exception or other exemptions which remove the necessity to pay NICs. Class 2 NICs are payable at a flat weekly rate.

In addition, most self-employed people are also required to pay Class 4 NICs. Class 4 NICs are payable (as well as Class 2 NICs) if profits are £8,424 or more a year. Class 4 NIC rates for the tax year 2018-19 are 9% for chargeable profits between £8,424 and £46,350 plus 2% on any profits over £46,350.

A number of categories of people are exempt from paying Class 4 NICs, these include:

• People under the age of 16 at the beginning of the year of assessment.
• People over State pension age at the beginning of the year of assessment. A person who attains State pension age during the course of the year of assessment remains liable for Class 4 NICs for the whole of that year.
• Trustees, guardians etc, of an incapacitated person are exempted from Class 4 NICs on that income.

The Class 4 NIC rate is substantially lower than the corresponding rate for employees who pay National Insurance at 12% on the same income levels. Both the employed and self-employed pay 2% National Insurance contributions on income above the higher rate threshold.

HMRC offers an online service to check your National Insurance Contributions (NIC) record online. In order to use the service, you will need to have a Government Gateway account. If you don’t have an account, you can apply to set one up online.

By signing in to the ‘Check your National Insurance record’ service you will also activate your personal tax account if you haven’t already done so. The personal tax account can be used to complete a variety of tasks, from updating an address, managing your child benefit and completing your Self Assessment return.

Your National Insurance record online will let you see:

• What you have paid, up to the start of the current tax year (6 April 2018)
• Any National Insurance credits you’ve received
• If gaps in contributions or credits mean some years don’t count towards your State Pension (they aren’t ‘qualifying years’)
• If you can pay voluntary contributions to fill any gaps and how much this will cost

In many circumstances it can be beneficial to make voluntary Class 2 contributions to increase your entitlement to benefits, including the State or New State Pension. Class 2 NICs were due to be abolished from April 2019 but this has now been cancelled.

HMRC offers an online service to check a National Insurance record. In order to use the service you will need to have a Government Gateway account. If you don’t have an account, you can apply to set one up online.

By signing in to the ‘Check your National Insurance record’ service you will also activate your personal tax account if you haven’t already done so. The personal tax account can be used to complete a variety of tasks, from updating an address, managing your child benefit and completing your self assessment return.

Your National Insurance record online will let you see:

• What you have paid, up to the start of the current tax year (6 April 2018)
• Any National Insurance credits you’ve received
• If gaps in contributions or credits mean some years don’t count towards your State Pension (they aren’t ‘qualifying years’)
• If you can pay voluntary contributions to fill any gaps and how much this will cost.

In many circumstances it can be beneficial to make voluntary Class 2 contributions to increase your entitlement to benefits, including the State or New State Pension. Class 2 NICs were due to be abolished from April 2019 but the government announced last September that the planned abolition of Class 2 NICs has been cancelled.

In the 2016 Budget, the government announced that termination payments over £30,000 would be subject to employer National Insurance Contributions (NICs) from April 2018. In the 2017 Budget, the government further announced that this change would be delayed for a year with the changes set to come into force from April 2019. A further delay in the implementation of the new rules has now been confirmed, and the introduction of employer NICs on termination payments above £30,000 will now commence from 6 April 2020.

The government had previously confirmed that the £30,000 tax free exemption on termination payments would be retained but that certain payments will no longer fall within the allowance. From April 2020, termination payments over £30,000, which are subject to Income Tax, will also be subject to employer NICs. Non-contractual termination payments of up to £30,000 will continue to remain exempt from Income Tax and employer NICs. The changes will also apply to sporting testimonials of more than the £100,000 lifetime exemption.

It is expected that the any employer NICs due on these termination payments will be collected in ‘real-time’, as part of the employer’s standard weekly or monthly payroll returns and remittances to HMRC.

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the amount of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to, such as the State Pension.

For example, National Insurance credits may be available to:

• those looking for work,
• who are ill, disabled or on sick pay,
• on maternity or paternity leave,
• caring for someone or
• on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits, whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

There are usually no National Insurance credits available to the self-employed required to pay Class 2 National Insurance, nor for older married women who chose to pay a reduced rate of National Insurance (pre-April 1977).

Class 3 National Insurance Contributions (NICs) are a voluntary contribution paid by those wishing to fill gaps in their NICs contribution record and can be used by taxpayers who have not made sufficient compulsory contributions or are not liable to pay any other class of National Insurance contributions.

Essentially, Class 3 contributions can be used to secure certain state benefits, and more importantly, entitlement to a full State Pension. The form (CA5603) to pay voluntary Class 3 NICs has recently been updated.

It may be worth paying Class 3 NICs if, for example, you are close to State Pension age and don’t have enough qualifying years to get the full State Pension or if you are self-employed and don’t have to pay Class 2 contributions because you have low profits or live outside the UK, but you want to qualify for benefits.

You can pay voluntary Class 3 National Insurance contributions if you are:

• over 16
• not working
• not liable to pay Class 1 and/or Class 2 National Insurance contributions as a self-employed person
• a woman who revokes her married woman’s or widow’s reduced rate election part way through a tax year
• a self-employed person who has profits below the Small Profits Threshold or was previously exempt from paying Class 2 National Insurance contributions.

Class 3 NICs are usually paid by monthly direct debit. It is also possible to pay quarterly and there are special arrangements for people who are abroad or are going abroad. For 2018-19, Class 3 NICs are payable at £14.65 per week, so a full year’s worth of contributions costs £761.80. Before paying Class 3 NICs, it is important to check if it is beneficial to do so.

In a surprise move, the government has announced that following a lengthy consultation the planned abolition of Class 2 National Insurance Contributions (NIC) will not take place in the current parliament. The announcement was made in a written statement by Robert Jenrick MP, the Exchequer Secretary to the Treasury on 6 September 2018. The withdrawal of Class 2 NICs was originally due to take place from April 2018, but had been delayed until April 2019.

The written statement cited concerns relating to the impact on self-employed individuals with low profits. They would have suffered an increase in costs if they have made voluntary NIC payments to maintain access to the State Pension. There were also concerns that the planned abolition of Class 2 NICs would have actually made the tax system more complex at a time when the government is trying to simplify the tax code. The government have said that they will keep the issue under review ‘in the context of the wider tax system and the sustainability of the public finances’.

Class 2 NICs are currently paid by self-employed taxpayers and members of partnerships if their annual profits are over £6,205. Class 2 NICs are payable at a flat weekly rate currently, £2.95. Class 2 NICs count towards payments such as the state retirement pension, the employment and support allowance, maternity allowance and bereavement benefits.

The government still intends to legislate for reforms to the NIC treatment of termination payments and income from sporting testimonials, set out in the draft NICs Bill.

Taxpayers who have lost or forgotten their national insurance number should first try and locate the number on paperwork such as their tax return, payslip or P60. Taxpayers with access to their personal tax account can also login to view or print a letter with their national insurance number.

If the national insurance number cannot be located, a request can be submitted in writing to HMRC using form CA5403. The form has recently been updated. HMRC will not disclose the number over the telephone, and will instead send the details to the applicant by post. The details should arrive within 15 days.

Teenagers should automatically be sent a letter just before their 16th birthday detailing their national insurance number. These letters should be kept in a safe place. The old plastic national insurance cards that some of our readers may remember are no longer available.

The national insurance number helpline, can help those aged between 16 and 20 who have not received a letter with details of their national insurance number as well as other new applicants.

An individual must have the right to work or study in the UK in order to apply for a national insurance number.