In certain circumstances National Insurance Contributions (NIC) Credits are registered for individuals as though they had made a minimum contribution even if they are not making any Class 1 contributions:
- Individuals taking time off work to raise a family or to care for relatives.
- Claiming Unemployment, Maternity, Paternity, Adoption, Sickness benefits.
- Individuals aged 16 – 18 attending school.
- Individuals attending an approved Training programme (not university).
- Where income is below the Primary Earnings Threshold but at or above the Lower Earnings Limit.
NIC and Earned Income
NIC is only payable in respect of earned income. Class 1 is paid in respect of employment income, and class 2 & class 4 NIC is paid in respect of self-employed profits. Therefore, when calculating NIC, other income such as rental income, savings income, dividends, exempt income (eg, interest from a NISA) should be ignored.
Maximum Contributions Due For Class 1
Where there is more than one employment, it is possible to overpay and therefore a deferment can be applied for in respect of one of the employments. One employer will then be instructed to only collect 2% on earnings over £153 per week.
More Than One Source Of Employment
Where an individual has more than one source of employment, there are two scenarios that might arise:
Direct link between jobs and employers
NICs need to be aggregated together. This treats the earnings as if they are coming from one source.
No direct link between jobs and employers
Consideration is given to the maximum contributions due for Class 1 to avoid overpayment from each source of employment.
The contribution record of the individual will be reviewed at the end of the year and the employee will need to make good any underpayments. Employer’s NI remains unchanged
Self employed National Insurance Contributions
Self employed people may have to pay Class 2 and Class 4 contributions. Class 2 NIC is charged at a flat rate of £2.75 on earnings over £3,885. Class 4 is for profits made between a lower and an upper earnings limit.
Only class 2 contributions give entitlement to contributory state benefits such as the basic pension but not S2P. Class 4 does not provide any benefit so it is important that class 4 NIC is not paid unnecessarily.
Payment of Class 2 NICs is generally made by direct debit from the individual’s business bank account on a 4 weekly basis. Alternatively, arrangements can be made for this to be paid each quarter on demand from NICO.
Certificate Of Exemption
Self employed earners with a small income may claim exemption from liability by applying to HMRC for a certificate of exemption where earnings are likely to be less £5,885. The certificate can be backdated for thirteen weeks only.
Self-employed Class 2 NICs need to be paid if they are UK resident or resident for tax purposes for 26 weeks out of 52 before payment date.