557d0bac 157e 4ba1 8b8e eae1c0469425 800x380 - Apply for NIC Childcare Credits

Apply for NIC Childcare Credits

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the amount of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to such as the State Pension.

National Insurance credits are available in certain situations where people are not working and, therefore, not paying National Insurance credit. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

The CA9176 form is used to apply for National Insurance childcare Class 3 credits if you are an adult family member caring for a child under 12 (usually while the parent or main carer is working). This form has been updated to include care that is being provided from a distance because of Coronavirus (COVID-19) – for example, by telephone or video if the carer was required to self-isolate. This Coronavirus measure applies to the 2019-20 and 2020-21 tax years.

Depending on your circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Source: HM Revenue & Customs Wed, 27 May 2020 05:00:00 +0100
2016 07 25 672751 800x380 - Class 1 NICs zero rate band

Class 1 NICs zero rate band

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some case income tax. The planning strategy is to pay a salary at a level that qualifies the director for State benefits, including the State Pension, but does not involve payment of any NICs.
 
For 2017/18, the NIC rate is set at 0% for annual earnings in the range of £5,876 to £8,164 inclusive.  Earnings in this band range qualify for NIC credit for State benefit purposes.  At £112.99 per week (£5,875 p.a.) no NI credit is obtained for State benefit purposes.  At £157.01 plus per week (£8,165 p.a.) NI contributions start to be paid at the rate of 12%.

Planning notes

Based on the above considerations it will generally benefit director shareholders of small companies to pay themselves an annual salary of £8,164 for 2017-18 – thereby securing credits for State benefits but avoiding any NIC charge – and take any balance of their annual remuneration package as dividends. In certain circumstances, taking a lower salary, but staying within the £5,876 to £8,164 band, would be equally effective. Fixing an appropriate salary level should be decided by considering all the factors that influence liability for a particular taxpayer.

Other points that directors should be aware:

  • The comments on minimum salary levels for directors in this article can only apply to directors who are unaffected by the Minimum Wage legislation. Directors who have a written or implied contract with their company will need to be paid taking the National Minimum or National Living Wage regulations into account. In many cases, minimum salaries will be higher than those dictated to by NIC planning opportunities. We will be adding an article to expand on this point next week.
  • A director’s liability to NI is worked out based on their annual (or pro-rata annual) earnings. This differs from regular employees whose liability is calculated based on their actual pay period usually weekly or monthly.  Payments on account of a director’s NICs can be made in a similar way as for employees however an annual adjustment must be made at the end of the tax year.
  • Directors, who are first appointed during a tax year, are only entitled to a pro rata annual earnings band which depends on the actual date appointed and the amount of time remaining in the tax year. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.
  • Directors resigning during the year still have the full annual earnings band quoted above, and so care is needed to ensure that earnings for the whole tax year are within the range of £5,876 to £8,164.

Directors considering their planning options for the first time are advised to take professional advice as there are a number of considerations to take into account when setting the most tax/NI efficient salary. We, of course, would be delighted to help.