Paying Class 3 NICs

Milarky

I just wondered when I might be invited to pay a shortfall for tax year 2007-08 via class 3 NICs?

This page suggests I'm nearly a year 'ahead' of the civil service in asking this:

Gap in your National Insurance Record

You may receive a letter from HM Revenue & Customs inviting you to consider paying voluntary contributions (Class 3). This letter is issued to alert you to the fact that you have a particular tax year that will not count towards basic State Pension and Bereavement Benefit – it will not be a 'qualifying year'. Letters like this are issued to certain people every autumn. This year, letters will be issued from 30 August 2008 until January 2009 covering the 2006-07 tax year.

Whilst on the same page it suggests a payment made before the end of 2008/09 (and therefore in the 'year after') the NICs will be a the 'current year' (2007/08) rate:

When do I need to pay?

You must pay Class 3 contributions on time to ensure they count toward Bereavement Benefits and Basic State Pension Class 3 National Insurance contributions are normally due no later than 42 days following the end of a tax year.

If you pay in the same tax year or during the one after, the rate will be the current one in force. Any payments made after that could be at a higher rate.

So that appears contradictory somewhat. NICO would write to me 'next' tax year about a shortfall from two tax years earlier - but the rate may be higher than paying this year....

And does 'the customer' just work out the shortfall and send a cheque - or do you have to contact NICO, ask them for a 'quotation' (a year 'early' for their purposes) and they will write back?

Any basic state pension experts know the approved set up here?

Thanks

Milarky

Right. Well I've just spoken to a 'nice' lady from NICO who informs me I will be asked to pay at 2007/08 rates (if I wish to) and the letters for this will be sent out from October this year (2009) as per the HMRC page. Thus it appears that 'customers' are not being obliged to pay any extra for NIC 3 simply because of the backlog they seem to be happy to put up with.

Can anyone confirm this is the current situation: provided you pay after receiving a letter (October to January) the year after, the year after the tax year in question?

Tibbledom

Worth having a look at TPAS website

http://www.pensionsadvisoryservice.org.uk/state_pensions/voluntary_contributions/

First thing to do (if you haven’t done it already) is to decide whether it is a good idea to pay voluntary contributions at all. Because of changes being introduced anyone reaching State Pension Age after 6/4/2010 will only need 30 years of contributions to get a full Basic State Pension.

The link covers it better than I can so have a look at that.

Edit: TPAS seems to confirm that if you pay class 3 contributions for 2007/2008 before 5/4/09 then the cost is £7.90 pw but if paid after 6/4/09 the class 3 contribtions for 2007/2008 increases to £12.05 pw.

And HMRC website at http://www.hmrc.gov.uk/nic/class3.htm also implies the 6/4/2009 date in saying

"If you pay in the same tax year or during the one after, the rate will be the current one in force. Any payments made after that could be at a higher rate".

So you are taking a risk if you rely on the woman from the NI contributions office who is saying to you the cut off is 6/4/2010 and not 6/4/2009.

Bizarre that the default notices for 2007/2008 are sent out in batches between Nov 2009 and January 2010 by which time the option to pay at the lower rate has supposedly gone.

Milarky

Any idea 'why' class 3 is jumping nearly 50% this April? The benefits aren't jumping (only going up by inflation) and I assume it isn't for 'actuarial' reasons either - although that might be trotted out as a post facto justification.

Milarky

Phoned NICO again this morning. They are saying that letters going out later this year will still invite payment at the 2007/08 weekly rate (£7.80) - notwithstanding the general information that to pay at 2007/08 rates the payment should be received by 5 April 2009.

(So it appears they are just delayed - and that 'customers' won't be asked to pay any extra on account of that delay - can anyone confirm this?)

Tibbledom

Milarky wrote: »

Any idea 'why' class 3 is jumping nearly 50% this April? The benefits aren't jumping (only going up by inflation) and I assume it isn't for 'actuarial' reasons either - although that might be trotted out as a post facto justification.

The explanation on the Pensions Service website at

http://www.thepensionservice.gov.uk/state-pension/basic/faqs.asp

“Why are you proposing to increase the rate of Class 3 NICs by so much from £8.10 per week in 2008-09 to £12.05 in 2009-10?

The intention to increase the cost of Class 3 NICs was announced during the passage of the Pensions Act 2008 through Parliament. The proposed increase to £12.05 a week ensures that the new measure is overall cost neutral.”


Which begs the question, cost neutral with what? Perhaps it is now of more value to buy the extra year because of the reduction in the number of qualifying years required to get a full pension, buying 1 year when you need 30 is worth more than buying 1 year when you need 44?

Incidentally it is a bit of an anomaly that somebody not working could potentially set up as self-employed and pay the lower class 2 stamp to get the year's credit.

EdInvestor

IIRC it relates to the recent concession allowing people to buy up an additional 6 years (unspecified which years but later than 1975) of back contributions on top of the 10 years already allowed. This is the cost they refer to.