Class 3 National Insurance Contributions Deadline Extended to April 2025

Class 3 National Insurance Contributions are sometimes referred to as voluntary – i.e., there is a choice whether they are paid rather than a statutory obligation.?

Contributions are weekly values, currently ￡17.45. Important legislation comes into force later this month.

Payment of the full new State Pension (nSP) requires an individual to have at least 35 ‘qualifying years’ recorded against the NI history record (in this regard, individuals are advised to check their individual NI record).? Where the record is incomplete, if there are over 10 years, individuals will get a prorated amount.?

There are many reasons an individual may not have a NI qualifying year, for example:

• Maybe there have been breaks / gaps in employment
• Maybe earnings were too low and there was no eligibility for National Insurance Credits
• Maybe those National Insurance Credits have not been allocated

Simply, voluntary Class 3 Contributions can be used to ‘fill in’ any NI history gaps. Although, if an individual already has 35 years or is set to achieve that in their working lifetime, it must be questioned whether there is any point in paying something that will not increase the value of the nSP.

It would be remiss not to mention the latest State Pension underpayment issue.

HRP preceded National Insurance Credits, payable to those in receipt of Child Benefit.??Years of HRP should have resulted in the allocation of qualifying years to NI history.? According to DWP’s own 2021/22 report, this was known and the latest report refers to this being caused by DWP ‘administrative discrepancies’ and resulting in an estimated underpayment of ￡1,043 million amongst 187,000 individuals, 43,000 of who are now deceased).

This known issue is now being addressed, at last, and both the DWP and HMRC released a Policy Paper on 06 July 2023 entitled ‘Home Responsibilities Protection: correction of National Insurance records and State Pension entitlement’ advising their course of action from later this year.

Back to the purpose of Class 3 and, indeed, voluntary Class 2.?

Usually, HMRC allows individuals to fill any gaps going back a maximum of 6 years.? However, at the time the nSP was introduced, the Social Security (Contributions) Regulations 2001 (and Northern Ireland equivalent) allowed backdated voluntary Contributions for tax years 2006/2007 to 2016/17 to be paid, if they were paid by 06 April 2023:?

On 07 March 2023 in a Written Statement, the Financial Secretary to the Treasury announced the 06 April 2023 deadline would be extended to 31 July 2023.?

HMRC produced a Policy Paper at the time and legislated for this via the Social Security (Contributions) (Amendment No. 3) Regulations 2023 (and Northern Ireland equivalent).

On 12 June 2023, a Press Release announced the time limit would be extended to 05 April 2025, i.e., the end of tax year 2024/25.? Laura Trott, Minister for Pensions, Department for Work and Pensions, confirmed the Class 3 Contribution rates would remain at the 2022/23 weekly rate of ￡15.85.

The Social Security (Contributions) (Amendment No. 4) Regulations 2023 (and Northern Ireland equivalent) come into force on 26 July 2023. These also ensure that any voluntary Contributions are payable at the 2022/23 rates and not the rates applicable to the tax year in which they are made.

I agree this is a welcome extension and does give individuals more time to decide whether filling in gaps is right for them.? However, the section ‘Decide if you want to pay voluntary contributions’ in guidance is important and the line ‘Voluntary contributions do not always increase your State Pension’.?

There is no point paying voluntary Contributions and having a NI history greater than 35 years, when 35 years is the all-important eligibility criterion for payment of the full nSP.

I also got to wondering about the other Amendment Regulations in 2023 seeing as the relevant ones are 3 and 4:

1. The first Amendment Regulations concerned Overturned Historical Conviction compensation payments (payable by Post Office Limited) and Group Litigation Order compensation payments (payable by the Department for Business and Trade) and how these were not to be included as earnings for the calculation of NICs
2. The No. 2 Amendment Regulations were all about mandating the electronic submission of form P11D(b)

For completeness, there are also No. 5 Amendment Regulations on the way which are all to do with how payments from the Post Office’s Horizon Shortfall Scheme will not count as earnings when calculating National Insurance.??

All fascinating – or is it only me?