NIM20675 - Class 2 National Insurance contributions liability: Payment methods: Payment dates - Effect on state pension

Regulation 7(1) of the Social Security (Crediting and Treatment of Contributions and National Insurance Numbers) Regulations 2001 (SI 2001 No. 769)

Providing National Insurance contributions (NICs) were paid by the due dates of 31 January and 31 July by those liable to pay Class 2 NICs, whether by Direct Debit (DD) or in response to payment requests, the late payment and extra late provisions, which can affect a person’s entitlement to benefits, (see NIM23001), did not apply.

The payment for any periods of liability in the second half of the contribution year, if not paid monthly by DD, were due to be collected in the July following the end of the contribution year. If a person paid monthly by DD they would pay for the periods of liability in the last four months of the year from April to July after the end of the year in which Class 2 NIC liability arose.

Payment of Class 2 NICs after the end of the year in which liability arose, may have impacted entitlement to Basic State Pension (bSP). This is illustrated in the example below. If a person in this situation wanted to pay the Class 2 NICs immediately after the end of the year for which they were due but before the due date of payment, they were allowed to do so. But they could not pay in advance of a period of liability because that liability may not arise.

Example

Mr Smith reached state pension age (SPa) on 10 June 2012.

The last tax year used for bSP was 2011 to 2012 (the tax year before he reached SPa).

Mr Smith chose to pay Class 2 NICs for tax year 2011 to 2012 twice a year, in January 2012 and July 2012.

The NICs paid in July 2012 were recorded on the National and PAYE Service (NPS) system shortly after they were paid but after Mr Smith reached SPa.

Commentary

If tax year 2011 to 2012 became a qualifying year for bSP when the Class 2 NICs due for the period of liability in the second half of the year were paid, paying those NICs in July 2012 may have impacted Mr Smith’s entitlement to bSP from SPa. Once the NICs collected in July 2012 were recorded on his NPS account, assuming they were collected by that due date, Mr Smith’s bSP should have been recalculated and any arrears paid.

The payment request for the NICs due for the second half of the 2011/12 contribution year would have been issued in April 2012. Mr Smith could choose to wait until 31 July 2012 to pay for the NICs or he could have paid as soon as he got the payment request.