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HMRC internal manual

National Insurance Manual

Class 3 NICs: Additional Class 3 NICs: Number of NICs payable

Regulation 2 of, and Schedule 1 to, the Social Security (Earnings Factor) Regulations 1979

Regulation 2 of, and Schedule 1 to, the Social Security (Earnings Factor) Regulations (Northern Ireland) 1979

NIM25001 explains the meaning of “qualifying earnings factor” (more commonly known as “a qualifying year” (“QY”)). In the case of an individual who reaches State Pension age before 6 April 2010, for the purposes of the second contribution condition for entitlement to basic State Pension:

  • in respect of the 1975/76, 1976/77 and 1977/78 tax years, a QY is one in which:

    • the individual has paid, treated as having paid, or been credited with, Class 1, Class 2 or Class 3 NICs and/or earnings; and
    • the earnings factor (“EF”) derived from such NICs and/or earnings is not less than 50 times the lower earnings limit (“LEL”) for the tax year in question
  • in respect of the 1978/79 and subsequent tax years, a QY is one in which:

    • the individual has paid, treated as having paid, or been credited with, Class 1, Class 2 or Class 3 NICs and/or earnings; and
    • the EF derived from such NICs and/or earnings is not less than 52 times the LEL for the tax year in question. Regulation 2, though, provides that, where the EF derived from

Class 1 NICs and/or earnings which have been paid, treated as paid, or credited is short of the qualifying earnings factor by not more than a specified amount, then the EF is increased by up to the amount of that specified amount.

Example

Mrs M satisfies the conditions of eligibility for paying additional Class 3 NICs for the 1975/76, 1976/77 and 1977/78 tax years. All three years are non-QYs.

In the 1975/76 and 1976/77 tax years, Mrs M did not pay, was not treated as having paid, or credited, with any NICs. In order to make either year a QY, she will have to pay 50 Class 3 NICs for each one.

In the 1977/78 tax year, though, Mrs M paid “A” rate Class 1 NICs of £11.15. The EF derived from that amount of NICs is £194.78. When the increase in the EF is taken into account – the specified amount for that tax year is £14.00 - Mrs M needs to pay 37 Class 3 NICs in order to make the year a QY.

NICO has specific spreadsheets to calculate:

  • the number of Class 3 NICs required to make a tax year a QY where no NICs of any class have been paid, have been treated as paid, or been credited, in the year
  • the number of Class 3 NICs required to make a tax year a QY where some Class 1 NICs have been paid, have been treated as paid, or been credited, in the year.For details of:

  • the conditions of eligibility, see NIM25103
  • the rate of Class 3 NIC payable, see NIM25110.