For many individuals, National Insurance Contributions (NICs) are something that quietly build up in the background over the course of a career. For employees, the process is largely automatic through PAYE, with contributions deducted and reported in real time. However, for the self-employed (including partners in partnerships and LLPs), the position is very different.
When an individual becomes self-employed, they are required to complete form CWF1 (sole trader) or SA401 (partner in partnership or LLP) in order to register with H M Revenue & Customs (HMRC) for NIC purposes. In theory this is a simple step, however in practice issues can arise if HMRC does not process the form correctly.
This can lead to situations where HMRC systems do not recognise an individual as self-employed for NIC purposes, even where tax returns have been submitted on that basis.
Why does this matter?
At first glance, this may seem like an administrative inconvenience. However, NIC’s are not just about the current year’s tax liability, they determine whether an individual is correctly recorded as self-employed for NIC purposes, ensuring that contributions are properly credited as a qualifying year for state pension purposes. If HMRC’s records do not show the individual as registered for NIC’s, this can lead to gaps in their record. This may mean that, when they come to retire, they are not entitled to the full state pension. Based on current rules, an individual is entitled to a full state pension if they have 35 qualifying years.
By the time these issues come to light, often when individuals begin considering retirement, it can be significantly more difficult to correct historic records.
Whilst as agents we can prepare the relevant registration forms on behalf of our clients and share these with HMRC, we are unable to access the HMRC records to confirm whether they have been correctly processed and that the NIC paid via your tax return has been properly credited towards a qualifying year for state pension purposes.
How to check your position
The easiest way for taxpayers to check that their qualifying years position is correct is by looking at their HMRC Personal Tax Account (PTA). The PTA allows individuals to;
- View their NIC contribution history
- Confirm that they have been correctly registered as self-employed (where applicable)
- Identify any gaps in their record/check that previous contributions have been correctly credited.
Setting up your PTA is a straight forward process and provides a clear, accessible view of your NIC position (along with a number of other details in relation to your HMRC affairs).
You can set up your PTA by following the instructions here.
By regularly reviewing the information on your PTA, you can identify and address issues early, helping to ensure that full entitlement to state pension benefits is maintained.
Should you have any queries in relation to your NIC record please contact Alfie O’Dell or your usual HaysMac contact.
