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HMRC internal manual

National Insurance Manual

Earnings periods: reallocating NICs for benefit purposes: action by network: payment not mistimed

If it is decided that the provisions in Regulation 58(2) can be invoked, obtain the following information (for the sake of clarity specific tax years 1999/2000 and 2000/2001 are mentioned below):

  • details of NICs paid and credits awarded in the 1999/2000 tax year;
  • NICs paid on the insurable earnings received by the employee at the end of the first earnings period in the 2000/2001 tax year, ie the insurable earnings which relate to March 2000 plus those earnings for April 2000. This is because all the NICs paid at the end of the first earnings period in the 2000/2001 tax year are to be reallocated, not just a portion of them;
  • insurable earnings received by the employee at the end of the first earnings period in the 2000/2001 tax year, ie the insurable earnings which relate to March 2000 plus those for April 2000. This is because all of the insurable earnings for the first earnings period in the 2000/2001 tax year are to be reallocated, not just a portion of them.

When you hold this information, obtain answers to the following questions (if necessary by seeking the advice of Department for Work and Pensions benefit staff):

  • Will reallocation to the earlier (1999/2000) tax year enable the person to gain benefit entitlement?
  • Will reallocation in turn make the later (2000/2001) tax year deficient for benefit purposes?

If reallocation will not help the contributor to gain benefit entitlement, explain to them that the provisions of Regulation 58 cannot be invoked.

If reallocation will help the contributor to gain benefit entitlement, take the following action:

  • ask the contributor to sign a declaration which indicates that they understand the consequence, that reallocated NICs can never be put back to the original tax year. In the example, NICs reallocated to the 1999/2000 tax year will only count towards benefit as 1999/2000 tax year NICs and cannot then count towards benefit as 2000/2001 tax year NICs. A specimen declaration is shown at NIMAppendix2 (Word 19KB) 
  • if reallocation makes the later tax year (in this example, the 2000/2001 tax year) deficient for long-term benefit purposes, invite the employee to pay sufficient Class 3 NICs to remove the deficiency (see NIM25000CO). These will be treated as paid timeously if paid within one month of the invitation.
  • arrange for the relevant postings on NIRS2 to be amended, ie input an “employee only” (credit) for the NICs and insurable earnings which are to be reallocated and an adjustment for the earlier tax year
  • if a claim to benefit has been made, inform the benefits section that the record has been revised

Cases from NICO to Local Services

Most reallocation cases will come to light when a claim to short-term benefit is disallowed and will be dealt with entirely by Local Services on benefit involved files. Occasionally, however, Local Services will receive files from NICO. For example, a contributor finds that their record is deficient and enquires about a reallocation of NICs. NICO will try to resolve these cases but may ask Local Services for help/advice if:

  • there is doubt about the assessment of NICs; or
  • there is doubt about the liability for NICs; or
  • the contributor does not accept that reallocation is not appropriate.

Cases of this type will be very few and far between, but if one is received in the Network make appropriate enquiries. If necessary contact the employer and when a conclusion has been reached, inform the contributor what that conclusion is.