The decision to leave the UK for an extended period of time can be prompted by any number of changes in circumstances: family arrangements have changed; new job opportunities have presented themselves; or the idea of spending time abroad is simply too appealing to pass up. If there is a possibility that you will return to the UK in the future, that can make National Insurance Contributions ("NICs") very important.
What are NICs?
NICs are relevant for a significant proportion of the UK population but are not always well understood. Broadly, NICs are what are paid by UK workers in order to qualify for certain state benefits and state pension provision. The level of NICs that someone will pay depends on their particular circumstances, including:
- their employment status i.e., whether they are employed or self-employed; or
- their level of earnings; or
- if they claimed state benefits or child benefit; or,
- if they either live or work outside of the UK.
A point of detail: the UK's NIC system does not extend to Northern Ireland, which has its own distinct system (which is relatively similar to that in the UK more generally).
The UK has different classes of NICs, and those which will be relevant will depend on your own personal circumstances:
For employees, Class 1 NICs are the most relevant. They will be taken from an employee's salary by the employer (at the same time as the employer deducts income tax) if the employee is under the state pension age AND, currently, earns in excess of £242 per week from one job. Both employees and their employers will pay Class 1 NICs.
For people who are self-employed, the NICs paid will depend on the level of profits: as at the date of writing, individuals with profits in excess of £12,750 per year pay Class 4 NICs; for those with profits of between £6,725 and £12,750, Class 2 NICs are treated as having been paid but do not need to be paid; and those with profits of less than £6,725 per year do not need to pay NICs, but can elect to pay voluntary Class 2 NICs. Where someone happens to be both an employee and self-employed e.g., they have a 'side hustle', more than one class of NICs may be payable.
How are NICs paid?
The rules regarding NICs are, like most things, fact specific. Assuming that an individual had been employed, earning sufficient income and living in the UK up until they departed, they (and their employer) will have been paying NICs. NICs and any income tax will be deduced by the employer at source, prior to an employee receiving their salary. Self-employed individuals will have paid NICs as part of completing their 'Self-Assessment' tax return. If someone is leaving the UK then they are unlikely to want to continue making payments unnecessarily. Right? Well…it depends. Remember, NICs are paid to provide access to certain UK benefits.
If someone is leaving the UK for work purposes, then there may be no need for concern: being posted overseas - depending on where you are posted to and for how long - by a UK employer may mean that NICs will continue to be paid in the UK. Alternatively, it may be that the country an individual is leaving for has an agreement with the UK which dictates how and where social security payments i.e., NICs, will be paid. However, if someone decides to sever their ties with the UK in favour of another country for an extended period, and then seeks to return to the UK, there may be a need to pay closer attention to NICs.
What happens if I stop paying NICs?
In the time between leaving and returning to the UK there may be gaps in the NIC record. This can have consequences for someone that is seeking to return to the UK and have access to the UK's social security system: unless a certain value of NICs have been made over a period of time, there may be issues with getting access to, amongst other things, the UK state pension.
Can the gaps be filled?
Generally, yes. Voluntary NICs can technically be made. However, there needs to be clarity on what the gap in NICs is, and the applicable deadlines for making any voluntary payment – this is an area where there can be changes from time to time. This may require some engagement with HM Revenue and Customs and / or the Department for Work and Pensions.
Why is context important?
The social security landscape in the UK is one which does tend to change with the passage of time i.e., the age at which you can access the state pension has been increasing over the years. It is open to individuals to check their NIC record at any time (even if you are based outside the UK), in order to establish whether there is a gap in contributions, take steps towards closing any such gap and consider more generally the deadlines for doing so. It is worth noting that any NIC planning, for individuals returning to the UK after an extended period abroad, should form part of wider tax and estate planning. It is perfectly possible for individuals to have amassed assets and pension benefits abroad, while working outside of the UK. Those should the subject to local advice, and a comprehensive plan agreed in order to ensure that a return to the UK does not result in a loss of accumulated wealth.
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