Why You Need to Look After Your NIC (Because No One Else Will)

October 19, 2020 Categories: Tax

The income tax system means we can all rest safe in the knowledge that there’s an annual reconciliation process. But if you think the same goes for your national insurance contributions (NICs), you’re sorely mistaken.

Ruth Owen, director general of personal tax for HMRC, once told the Public Accounts Committee that there was no need to reconcile NICs annually because HMRC “had 40 years to do that”.

Ouch.

No one wants to reach state pension age only to find find gaps in their NIC record as a result of the lack of priority it’s given by HMRC. But it happens, time and again.

Let’s make sure it doesn’t happen to you.

 

How to spot the gaps

It all starts with the simple acceptance that you need to own your NIC data, so you need to make sure you check it every year.

You can do this via HMRC’s website.

After logging in, you’ll be able to see how much you’ve paid in NICs, any credits you’ve received, and identify gaps in contributions or credits.

Here are two examples of potential gaps that might need addressing:

  1. Incorrect real-time information (RTI) data from your employer: check the PAYE section of your Personal Tax Portal to see if every payment you’ve received is present.
  2. Discrepancy with P60: check that the total NIC figure at the bottom equals your P60 for the year.

These gaps often appear after payroll mergers, TUPE transfers, or a change in the accounting software used by your employer.

If you spot any discrepancies, contact HMRC as soon as possible to see what may have gone wrong.

 

What about National Insurance credits?

If you’re receiving a state benefit, you may be eligible for automatic NI credits. These provide you with a qualifying year for NIC when your earnings aren’t high enough to otherwise qualify.

However, we need to keep in mind that HMRC can be a little lackadaisical with anything related to NIC, so it’s vital that you check your account to see if you’re receiving the correct credits.

Here are examples of the state benefits which are eligible for those credits:

  • employment and support allowance;
  • maternity allowance;
  • child benefit for a child under 12 since April 2010;
  • carer’s allowance or income support;
  • working tax credit with a disability premium; and
  • universal credit.

Did you know some credits have to be applied for? If you find yourself in any of the following situations, make sure you contact HMRC to claim what you’re owed:

  • when in receipt of SSP, SMP, SAP or ShPP only, so earnings for the year are below the lower earnings limit;
  • foster carer which restricts your earning capacity;
  • long-term jury service; or
  • you’re a member of the armed forces.

A note for soon-to-be parents

If you’re about to become a parent, you may not be aware that the child benefit recipient can actually transfer their NI credentials to a non-working partner.

This can be particularly useful during maternity leave or if one of you decides to take an extended period of leave from work to raise the child.

Alternatively, the non-working partner can make their own child benefit claim – but it’s important you’re aware of the NIC implications. The same goes for anyone who decides not to claim for child benefit due to the high-income child benefit charge.

If you fall into any of these brackets, the best thing to do is to make a claim for child benefit to instigate the NI credits for the claimant, but opt out of the payments. This will avoid a tax charge and also ensure your child gets a national insurance number when they reach the age of 16.

 

State pensions: do the maths

If you reached state pension age from April 2016, you’ll need 10 qualifying years to get any state pension and 35 qualifying years to receive the maximum pension.

For people who worked before April 2016, there will have been transitional protection, and if you fall into that bracket, you’ll need to look at your NIC record to see what’s been assessed as your number of qualifying years.

It’s important to note that if you were contracted out of State Second Pension (SERPS) before April 2016, it’ll have reduced the value of your single-tier pension. However, any years you worked since that date while paying full NICs will have started to effectively lower your contracted-out reduction.

Don’t leave it too late. Find those gaps in your NIC by checking it every year online.

If the process confuses you at all (you’re not alone), remember that the Chandlers team is here to help.