As July approaches, are your National Insurance credits up to date?
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
7 March 2023
Chris Campbell explains the changes to the Voluntary National Insurance rules, originally due to be introduced from April 2023.
What is meant by voluntary National Insurance contributions?
Individuals who are employed and/or self-employed will normally pay National Insurance contributions in line with their earnings. Entitlement to state benefits (such as State Pension and Employment and Support Allowance) will be based on the number of qualifying years that an individual has accrued over their working life.
In addition to National Insurance on earnings, it can be possible to receive National Insurance credits so that a tax year can be treated as qualifying in an individual’s contribution history for state benefit purposes. This includes circumstances where a taxpayer is looking for work, is too unwell to work, is on maternity/paternity/adoption pay, is the recipient of Child Benefit, or is the spouse of a member of the armed forces.
Beyond this, in some circumstances, it is possible to make Voluntary National Insurance contributions so that a tax year can be classed as qualifying in an individual’s contribution history.
At present, where eligible, a man born after 5 April 1951 or a woman born after 5 April 1953 is currently able to pay voluntary contributions for tax years as far back as April 2006. This was due to change from 6 April 2023, but the Financial Secretary to the Treasury, Victoria Atkins, announced in a written statement that the deadline would be extended to 31 July 2023. This is because the original 6 April 2023 deadline resulted in a surge in contact with HMRC.
What is changing from July 2023?
After 31 July 2023, it will only be possible to backdate voluntary contributions for the previous six tax years. Individuals who are eligible and have gaps in their National Insurance history, but do not qualify for National Insurance credits, will only be able to do so for April 2016 onwards.
Individuals who are unsure about their National Insurance history should check their National Insurance record as a matter of urgency. This will allow them to either contact HMRC to draw attention to any errors or have the opportunity to pay voluntary contributions before the rules change.
How many qualifying years are needed for State Pension?
In order to qualify for the new State Pension, an individual needs to have at least ten qualifying years in their National Insurance record. Those years do not need to be consecutive.
The level of State Pension paid will be based on the number of qualifying years, but the full State Pension will only be paid where an individual has 35 qualifying years. It is possible to check your State Pension forecast to illustrate the likely State Pension entitlement, which may influence any decisions regarding voluntary contributions.
Pension planning is a very specialist area, so it is important to take appropriate advice as required so that you can make the best decisions for your or your client’s circumstances.
Let us know your views
We welcome members’ input to inform our work on consultations or other tax-related matters – email tax@icas.com to share your insights and feedback. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.