SolvedNIM25012 | Class 3 NICs: Restrictions on the right to pay: precluded Class 3 NICs: where the earnings factor is less than the qualifying earnings factor by less than half the LEL
From HM Revenue & Customs · National Insurance Manual
Regulation 49(1)(d) Social Security (Contributions) Regulations (SSCR) 2001
Regulation 3 Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) Regulations (SSCTCNINR) 2001
As explained in NIM25001, a person is not entitled to pay (i.e. is precluded from paying) Class 3 NICs in certain circumstances. One of those is that they cannot pay a Class 3 contribution for any tax year if it would cause the aggregate of their earnings factors (EFs), which is derived from:
earnings on which primary Class 1 NICs have been paid (for the 2003/04 and subsequent tax years, earnings on which primary NICs at the main primary percentage rate (main rate) have been paid (see NIM01110)); or
credited earnings; or
Class 2 NICs paid; or
Class 3 NICs paid or credited,
to exceed that tax year’s qualifying EF (QEF, see NIM25001) by half, or more than half, of the lower earnings limit (LEL). This is because regulation 3 of SSCTCNINR 2001 provides for a credit of Class 3 contribution where in any year there is a shortfall in the QEF of half that tax year’s LEL or less. Essentially a customer is precluded from paying because they will already get a Class 3 credit.
For the meaning of “credited” for the purposes of the above, see NIM25008.
Example
For the 2017-18 tax year:
the weekly LEL is £113
the QEF is £5,876
Mr Bixby has an earnings factor from Class 1 NICs at the main rate of £5,826.
As Mr Bixby is only £50 short of a QEF, which is less than half that tax year’s LEL (£113), he will be automatically credited with a Class 3 contribution under regulation 3 of SSCTCNINR 2001. He is therefore precluded from paying a Class 3 contribution under regulation 49(1)(d) of SSCR 2001.