Category: National Insurance

HMRC has advised that it has changed its approach to charging financial penalties when enforcing the National Minimum Wage (NMW) where there has been a transfer of employees from one employer to another under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Since 2 July 2018, where there has been a TUPE transfer of employees, all NMW liabilities, including the full financial penalty amount, are being enforced against the new employer (the transferee). The financial penalty is up to 200% of the pay arrears, capped at £20,000 per worker.

HMRC previously charged the former employer (the transferor) all or part of the penalty where it was triggered by arrears that accrued before the employees were transferred under TUPE.

The employment allowance of £3,000 per year, is available to most businesses and charities to be offset against their employers Class 1 NIC bill. The allowance can be claimed as part of the normal payroll process.

An employer can claim less than the maximum if this will cover their total Class 1 NIC bill. Eligible employers that have not yet done so can still claim for the current tax year (as well as make a backdated claim for one further tax year).

The eligibility to claim the employment allowance was removed for limited companies with a single director and no other employees, from April 2016. As the allowance was introduced as an inventive to take on staff, it was felt unfair that companies with a single director and no employees should benefit from the allowance.

There are a number of other excluded categories where employers cannot claim the employment allowance.

These include:

• Persons employed for personal, household or domestic work, such as a nanny or au pair (unless they are a care or support worker);
• A public body or business doing more than half your work in the public sector;
• A service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary.

Carer’s credit is a national insurance credit that can help carers to fill gaps in their national insurance record. Carers who don’t qualify for Carer’s allowance, may qualify for Carer’s credit. This can help increase the amount of state pension a carer receives when they reach the state retirement age. The Carer’s credit is available to qualifying applicants caring for one or more people for at least 20 hours per week. A carer’s income, savings or investments does not affect their eligibility for Carer’s credit. The carer must also be aged 16 or over and under the State Pension age in order to qualify.

The person the carer is looking after must usually receive one of the following benefits:

• Disability living allowance care component at the middle or highest rate
• Attendance allowance
• Constant attendance allowance
• Personal independence payment – daily living component, at the standard or enhanced rate
• Armed forces independence payment

If the person being cared for isn’t receiving one of the qualifying benefit, the Department for Work and Pensions (DPW) will consider whether the level of care provided is appropriate to qualify for Carer’s credit. The DPW will usually will consider the level of care as appropriate if there is a signed certificate confirming this from a health or social care professional. Carer’s will continue to receive Carer’s credits for 12 weeks after caring ends or for breaks in caring of up to 12 weeks.

The employment allowance of £3,000 per year is available to most businesses and charities to be offset against their employers Class 1 NIC bill. The allowance can be claimed as part of the normal payroll process using either HMRC’s Basic PAYE Tools or using other commercial payroll software packages. Once you have claimed the employment allowance, the claim will continue annually unless you stop making a claim. Eligible employers that have not yet done so can make a claim for the current 2018-19 tax year (as well as make a backdated claim for one further tax year).

If you are still receiving the employment allowance and are no longer entitled to do so you must notify HMRC. This can be done by selecting ‘No’ in the ‘Employment Allowance indicator’ field when submitting an Employment Payment Summary (EPS) to HMRC. HMRC will claw back any overpaid Class 1 NIC’s and can also charge interest and penalties on any overpaid employment allowance.

The employment allowance is not available for limited companies with a single director and no other employees. There are also a number of excluded employers who cannot claim the employment allowance. For example, persons employed for personal, household or domestic work, such as a nanny or au pair and employment that is either wholly or mainly of a public nature. No allowance is available for deemed payments of employment income.

There are currently 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 of £2.95 for the current 2018-19 tax year. Class 2 NICs count towards payments such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.

In addition, most self-employed people are required to pay Class 4 NICs. The self-employed are required to pay Class 4 NICs (as well as to Class 2 NICs) if their 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.

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.

In the Spring Budget 2017, an increase in the Class 4 NIC rate was announced by the Chancellor of the Exchequer, Philip Hammond. After political pressure from both sides of the house the increase was cancelled as the Chancellor agreed that the increase would break a key election manifesto commitment not to increase certain taxes. However, with the abolition of Class 2 NICs from April 2019 it would not be surprising if further changes are announced to Class 4 NICs in the not so distant future.

If you move abroad it can be advantageous to continue paying 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 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 NIC contributions.
• 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 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.

Planning note

Please call for advice if you are considering working abroad and want to maintain your NIC contributions in the UK.

Class 2 National Insurance Contributions (NICs) are paid by self-employed taxpayers and members of partnerships if their annual profits are over £6,025. Class 2 NICs are payable at a flat weekly rate currently, £2.85. Class 2 NICs count towards payments such as the state retirement pension, the employment and support allowance, maternity allowance and bereavement benefits. The withdrawal of Class 2 NICs was due to take place from April 2018 but has now been delayed until April 2019.

The collection of Class 2 NICs changed with effect from the 2015-16 tax year and is now made through the existing self-assessment system together with income tax and Class 4 NICs. A liability to Class 2 NIC should be reported on an individual’s self-assessment tax return and any payment of Class 2 NICs relating to 2016-17 will become due on 31 January 2018. The option to make a monthly payment is no longer generally available, however it is possible to set-up a Budget Payment Plan and continue making payments in instalments.

Planning note

A limited number of self-employed taxpayers don’t pay tax through self-assessment (such as a non-UK resident who’s self-employed in the UK). If this is the case, HMRC should contact you to make separate payment arrangements.

In a surprising move, the Government has announced that the planned abolition of Class 2 National Insurance Contributions (NICs) is to be delayed for a year. The withdrawal of Class 2 NICs was due to take place from April 2018 but will now take place one year later from April 2019.

The enabling legislation for this change, NICs Bill will now be introduced in 2018 and will take effect in April 2019. The measures in the Bill include, the abolition of Class 2 NICs as well as reforms to the NICs treatment of termination payments and changes to the NICs treatment of sporting testimonials.

We are told that the reason for the delay, is to allow more time for the Government to assess the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. As plans currently stand, self-employed individuals with low profits are likely to face higher costs once the Class 2 NICs are withdrawn.

Planning note

Those with profits below the small profits threshold (currently £6,025), will have to pay Class 3 contributions, which are five times as much as Class 2 contributions in order to build up an entitlement to benefits including the state retirement pension. Class 2 NICs are currently payable at a flat weekly rate currently, £2.85 whilst Class 3 NICs are £14.25 per week.

Commenting on the delay, the Low Incomes Tax Reform Group proposed the possible introduction of a lower rate of Class 3 NICs or other measures to help the low-income self-employed.

Any self-employed person who has more than one source of self-employment is required to pay Class 4 National Insurance Contributions (NICs) on their total taxable profits. Class 4 NICs are paid by the self-employed as a percentage of annual taxable profits.

Class 4 NICs currently apply on assessable profits from £8,164. Between £8,164 and £45,000, NICs are payable at 9%. Any income above the Upper Profits Limit is liable to NICs at 2%.

However, the self-employed may need to adjust the amount of Class 4 NICs they pay in certain circumstances, otherwise they may overpay their NIC liabilities. See planning note below.

Planning note

The self-employed may be able to reduce their Class 4 NIC liability if:

• Profits include income on which they have paid Class 1 National Insurance contributions;
• Trade losses (not losses from furnished holiday lettings) that haven’t been deducted when working out Class 4 National Insurance profits;
• Any interest from a loan used to invest in a partnership or to provide plant and machinery for partnership use, that they haven’t already taken off when working out their profits – not all loans or partnerships can qualify.

If you are uncertain how these adjustments could be applied to your circumstances, we would be more than happy to help you with the calculations.

 

HMRC offers an online service to check your National Insurance 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. 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 2017)
• 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

Planning note

If you are self-employed 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 will be abolished from April 2018 so now is a good time to examine if there is scope for making voluntary contributions in this cost-effective way.

Class 2 National Insurance Contributions (NICs) are currently paid by self-employed taxpayers and members of partnerships if their annual profits exceed £6,025. Class 2 NICs are payable at a flat weekly rate currently, £2.85. Class 2 NICs count towards benefits such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.

In last year’s Autumn Statement, it was confirmed that Class 2 NICs will be abolished from April 2018. This measure was first announced at Budget 2016. Going forward the self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. Self-employed people with profits below the Small Profits Limit will be able to access contributory employment and support allowance through Class 3 NICs.

We have been told that provisions will be put in place to support self-employed individuals with low income levels. However, as things stand, Class 4 NICs are not payable until income reaches £8,164. If a self-employed person wants to protect their NIC contributions record they will have to pay voluntary Class 3 NICs. Class 3 NICs are currently chargeable at £14.25 a week, quite a significant increase from the current £2.85 per week Class 2 NIC payment.

Planning note:

Low-income self-employed persons can still top up their contributions record for 2017-18 by making Class 2 contributions.

The changes we have highlighted need to be considered, especially if you are approaching the State retirement age and you are uncertain if you have sufficient NIC contribution years to secure the full State Pension. If this is the case we can help you apply for a State Pension forecast. This will indicate how many years contributions you have made.