As I am aware from my own experience, you should regularly check your National Insurance record and state pension forecast. This is especially so with regard to gaps in HMRC’s record of your NI contributions.
Gaps in your NI record can and probably will, reduce the number of contributory benefits you are entitled to. These gaps are not just confined to the state pension and can affect maternity pay, employment allowance and a number of other minor state benefits and can occur for a variety of reasons, such as:
- Periods of unemployment
- Maternity leave
- Moving from PAYE to self-employment (SE)
- Living or working abroad
- Errors by HMRC
Where an individual is aware of missing years, he/she can make a voluntary payment of class 3 (or class 2 for self-employed taxpayers) to plug the gap. Protection is available in the form of NI credits for people out of work for reasons such as childcare or caring responsibilities, illness, disability and many more.
Also, 35 years of NI contributions are now needed for a full basic state pension of £221.20 pw for all retirees from 5th April 2016, previously 30 years were needed to give a full state pension of £169.50 pw.
Concerns
Even when an individual has done everything right, their NI record can still be full of holes through no fault of their own. In a 2023 Blog, I reported that individuals who had signed up for child benefit without putting their national insurance number (NINO) on the claim form, had been left with gaps in their NI record due to being excluded from home responsibilities protection by HMRC.
To make matters worse, in February this year, HMRC main computer system threw a ‘hissy-fit’ and did not process tens of thousands of voluntary class 2 contributions. The contributions were rejected and refunded in error with no explanation, with most of those affected earning small SE profits. This group tend not to have an accountant and most are heavily reliant on the maximum state pension when they retire.
A one-off error?
One would like to think that the HMRC computer snafu, was a one-off but sadly this error is just the tip of an NIC gaps iceberg. On my accountancy forum AccountingWEB, dozens of accountants have posted examples of SE clients who earn above the small profits threshold and whose compulsory Class 2 payments have also been refunded by HMRC, thus depriving them of a number of qualifying years.
A third group are those SE individuals who pay their Class 2 NI after the 31st January self-assessment (SA) deadline, this group have also been refunded without explanation and most do not realise what the refund is for. To make matters worse, their accountants are also kept in the dark by HMRC.
How long has this being going on?
The quick answer is far too long, with a number of examples of up to 20 years missing from some people’s contribution record. It appears that HMRC have not recorded many SE individuals as self-employed on their systems and therefore have not required them to pay class 2 NIC. In these circumstances HMRC have merely refunded the contribution money without a word of explanation and most of the individuals concerned, just accept the refund and don’t ask further questions.
This often occurs when an individual has to complete a Tax Return for another reason and subsequently becomes self-employed. The result is that class 2 does not get charged and if voluntary class 2 contributions are made the payment gets refunded. Sadly, HMRC do not check for this frequent issue.
You may be surprised to learn that it’s not just the self-employed who are affected, as I am aware of many PAYE workers that have Class 1 or Class 3 NI credits missing from their records for a variety of reasons.
So, what can you do?
Unfortunately, whilst accountants can view their clients’ income tax records we can’t view NI records. This places the onus on you, the taxpayer. It is vital to appreciate the importance of checking for gaps while there’s still time to replenish any missing years, do not and I repeat DO NOT! Assume that HMRC have got it right.
If you haven’t got a personal tax account set up, one of the quickest ways to check your NI record is via the simple to use and free to download HMRC app, go to: https://www.gov.uk/guidance/download-the-hmrc-app. This app is easy to use, even for those not familiar with interacting with HMRC via a computer.
How to buy back years
If you do have a shortfall, you can buy back any missing years, but only until 5th April 2025, when you’re restricted to go only going back six years. So, if you have any NI gaps for the years 2006 to 2017, you need to decide soon whether you are going to buy them or you will lose the opportunity to do so.
if you’re 47+ and will therefore reach state pension age within 20 years, it is easy to calculate the cost of regaining the missing years. A voluntary NI year will cost around £800, but adds £275 a year to your state pension, which means that you will pass the breakeven point after three years of receiving your pension.
Accountant’s view
This subject is one that I have personal experience with and I have to confess, until relatively recently, I had assumed that as my tax record was correct, so my NIC record would be, but I was wrong. When I checked my pension forecast, I discovered to my horror, that the DWP’s records showed that I was 7 years contributions short of qualifying for a full pension, so I telephoned them.
The pensions adviser explained that there was nothing they could do as their record of my entitlement years had been supplied by HMRC. I then contacted HMRC by ‘phone and letter (multiple times) and it took me nearly a year to finally obtain a statement of contributions. HMRC’s record showed 5 gaps in my record, only one of which matched the record held by the DWP, with neither record being correct.
I will not bore you with what I had to do to get my NI record corrected, which I’m pleased to say I eventually did; but even with my knowledge of the system, it took nearly 2½ years in total!
So, in view of my own long battle with the incompetent section of HMRC that deals with these matters, I cannot emphasise too highly, that it is vital that everyone (whether employed or self-employed), checks their NIC record immediately and regularly thereafter. You do not want to discover that there are gaps in your record when you reach retirement age, when it could be too late to do anything about it!
