How will these NICs count towards state benefits? DWP publishes draft regulations
HMRC intends to recover unpaid Class 2 National Insurance contributions (NICs) through a person’s PAYE tax code. This will begin in tax year 2014/15.
The question arises as to when NICs paid in this way will be treated as paid for the purposes of the payer’s NIC contribution record. The Department for Work & Pensions (DWP) has published draft regulations to clarify this.
Coding out will be an additional way of collecting Class 2 NIC debts. It may be done with the taxpayer’s agreement. HMRC will also have the power to insist on it in cases where the taxpayer has not been able to settle the debt another way or agree a payment arrangement.
Class 2 NICs are paid by the self-employed and count towards certain contributory benefits including basic state pension, bereavement benefits, employment and support allowance and maternity allowance. Class 2 contributions are paid on time if they are paid by the first Sunday in the year following the end of the tax year in which they were due. Contributions paid after that time but within six years are generally classed as late paid and only count for benefit purposes from the date they are paid (or in certain cases, from a future date); they do not count for past periods.
The government is amending the social security regulations to specify that Class 2 NICs paid by coding-out will be treated as paid on the 5 April in the tax year in which they are collected. From that date they will count towards social security contributory benefits in the same way as any other late paid contributions.
The Department for Work & Pensions (DWP) has published draft regulations to make these amendments – the Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) (Amendment) Regulations. They will come into effect on 6 April 2014.