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.

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.