In response to a recent helpdesk query, ICB is relaying information to members which may be of interest. The query asked:
‘I reach State Pension age (66) on 02 May this year. I left employment in 2023 and since then I have been self-employed. I have paid the maximum number of years to qualify for a full State Pension, so does this mean that I can stop paying National Insurance Contributions from May?’
In the above situation, we are not looking at the same ‘type’ of National Insurance Contributions (NICs):
- Class 1 NICs are payable by employees and the employers who pay the earnings;
- Class 4 NICs are payable by the self-employed where they have profits or gains that are subject to Income Tax
You would have thought the treatment at State Pension age (SPa) would be the same, however, legislation tells us differently:
Class 1 Liability at SPa
Section 6 (3) of the Social Security Contributions and Benefits Act 1992 says there is no liability for Class 1 NICs to be paid when an individual reaches SPa. Regulation 28 of the Social Security (Contributions) Regulations 2001 puts this into practice and says that no employee / Primary NICs are payable on earnings paid after reaching SPa.
This is the reason we place employees on category letter C for paydays on and after the employee reaches SPa.
Class 4 Liability at SPa
Schedule 2, paragraph 5 of the Social Security Contributions and Benefits Act 1992 confirms that Class 4 NICs are an annual liability (as opposed to Class 1 which is based on earnings on the pay period). Regulation 91 of the Social Security (Contributions) Regulations 2001 puts this into practice and says no Class 4 NICs are payable if the individual was at the SPa at the start of the tax year.
If the person reaches SPa during the course of the year, as in the scenario posed where this is reached on 02 May, Class 4 NICs remain payable for the whole of that year.
For Bookkeepers
Simply, the difference in treatment is because:
- Class 1 NICs liability is determined by reference to the age on payday, as this type of NICs is assessed based on earnings in the pay period; but
- Class 4 NICs liability is an annual one and it all depends on the age of the person at the start of the tax year
So, in response to the query about the person reaching SPa during the tax year, they remain liable for Class 4 for the entire tax year. It is only at the start of the following tax year that they will be exempt.
