NI liability on deferred bonus sheme

caveman8006

I retired from a banking job in the city in 2015, but was still entitled to 3 deferred bonus payments of approximately £40,000 in June of 2016, 2017 and 2018. I have received no other income in these tax years. My ex-employer has (correctly) applied a 0 tax code and weekly ni basis to these payments. This results in an excess tax deduction (which is easily reclaimed through the normal self-assessment annual return process). But the NI deduction from the payments (of approximately £900) look very low. Indeed, as I need the extra years for state pension purposes, I am being invited to "top-up" by approximately £1,200. But, am I actually liable for a much higher NI payment in these 3 years, more in line with the £4,000 or so I would have paid if the remuneration had been paid as a monthly salary? And if so, how does one go about updating the NI records?

Tom99

Are you sure the three years are not showing as qualifying years?

"Since April 1978 a qualifying year has meant a tax year in which a person received (or was treated as having received) qualifying earnings of at least 52 times the weekly Lower Earnings Limit set for that year. [SSCBA 1992 section 122]"

So if you are paid £40,000 for one week you should qualify?

caveman8006

No. Although the income is certainly high enough, the actual NI deducted by payroll (approximately 2% of the gross) is not sufficient to reach the minimum contributions. That's the problem. Actually, to be precise, the income figure associated with my NI account (which is not visible to me it seems) is clearly much lower that the actual figure, even though it is correctly recorded in my on-line tax account. It almost seems that the NI system implicitly deduces an income on the basis of the NI paid, if that makes sense.

Tom99

[FONT=Verdana, sans-serif]Yes I see what you mean. Most of the £40,000 would be at the 2% rate since it is over the upper earnings limit of about £815 per week.

[/FONT] [FONT=Verdana, sans-serif]I would write to HMRC and query why you have not been given a full years credit.

[/FONT] [FONT=Verdana, sans-serif]Have you looked at your pension forecast to see how much top up NI is needed for these years?[/FONT]

caveman8006

The only year where the top-up has been calculated is 2016/17 where is roughly £1,200, but I assume the figures for the other 2 years will be similar in due course. Rather than complain about the lack of a full qualifying SP year, I feel more inclined to just top-up as I still feel I would be doing very well compared with the situation of having to pay closer to £4,000 if the remuneration had been paid monthly. Seems too good to be true to me.

Tom99

[FONT=Verdana, sans-serif]Class 3 Voluntary contribution for 2016/17 is £733.20 and for 2017/18 £744 so it seems you are being asked to contribute much more than someone who has not had any income for those years.[/FONT]

agrinnall

Tom99 wrote: »

[FONT=Verdana, sans-serif]Class 3 Voluntary contribution for 2016/17 is £733.20 and for 2017/18 £744 so it seems you are being asked to contribute much more than someone who has not had any income for those years.[/FONT]

Which is not unreasonable given that the OP has had income of £40K over the three years.

caveman8006

Oh. I didn't realise that. So they are asking me to pay more than the minimum needed for an added SP year? I really don't understand the logic at all.

Tom99

agrinnall wrote: »

Which is not unreasonable given that the OP has had income of £40K over the three years.

[FONT=Verdana, sans-serif]Yes that was a silly comparison of me to make.[/FONT]
[FONT=Verdana, sans-serif]I still do not understand why NI on £40,000 does not count as a full year. Is there a minimum number of payments or total amount which needs to be paid? My last employment was for 3 months but it still counted as a full year of NI.
[/FONT]

agrinnall

Tom99 wrote: »

[FONT=Verdana, sans-serif]Yes that was a silly comparison of me to make.[/FONT]
[FONT=Verdana, sans-serif]I still do not understand why NI on £40,000 does not count as a full year. Is there a minimum number of payments or total amount which needs to be paid? My last employment was for 3 months but it still counted as a full year of NI.
[/FONT]

It's explained in post #3.