National Insurance Contributions

images (1)An interesting case came my way recently: a mission worker returning to the UK is unable to work due to ill health, and has been denied full Employment and Support Allowance due to not having maintained enough National Insurance Contributions (NICs) while serving abroad.  This person commented to me:

Right now I’m feeling somewhat miffed that I wasn’t warned of this possible complication on my return should I need benefits.

The sadness of this case is that the mission worker had been paying NICs, but not the right class, and it would have been easy to make up the difference had this person realised.  Which raises the point that churches, sending agencies and mission workers need to be aware that there are implications for failing to pay not only the correct amount of NICs, but also the right class, since there are four different types of NICs.

A quick recap: National Insurance Contributions were designed to be the method by which British citizens contribute towards the cost of a variety of forms of social security (e.g. state pension, the National Health Service, and financial support for the sick and unemployed).  Failure to pay NICs can compromise or limit a citizen’s right to receive these services.  Below is a table (copied from the HMRC website) indicating the different classes of NICs and what they entitle the contributor to:

Benefit Class 1 – paid by employees Class 2 – paid by self-employed people Class 3 – paid by people who want to top up their contributions
Basic State Pension Yes Yes Yes
Additional State Pension Yes No No
Contribution-based Jobseeker’s Allowance Yes No (except for volunteer development workers employed abroad) No
Contribution-based Employment and Support Allowance Yes Yes No
Maternity Allowance Yes Yes No
Bereavement benefits Yes Yes Yes

(Class 4 National Insurance Contributions – paid by some self-employed people – don’t count towards any state benefits.)

1354359_fifty_pounds_2NICs are notoriously complicated and we can give no more than an overview here, while encouraging everyone to make sure they are paying the right amount and the right classes.  We strongly suggest that everyone who has worked abroad should check exactly what your current entitlement to state pension is and what you need to do to preserve your pension rights.  To do this you should arrange a pensions forecast.  You can only do this while in the UK and you can find out about a pensions forecast here.  If there is a shortfall in the contributions you have made to date, you can top them up.

With any other queries about your NICs and entitlement to benefits you should contact HMRC who have a specific unit for people working overseas.  Click here for further details.

If you are fortunate enough to be involved in humanitarian or development work, and your sending agency or church has registered with HMRC, you may be entitled to make Voluntary Development Worker contributions, which are levied at a lower rate.  Click here for further details.

It will also be useful to have your residency status resolved as this can also affect rights to benefits.  Many mission workers are keen to be classed as non-resident, but this is one situation in which it may be helpful to be resident!

More information is available on the HMRC website and a particular clear overview is given by the Citizens’ Advice Bureau.

Statutory Residence Test

A happy landing?        (Photo: SXC)

A happy landing? (Image: SXC)

Overseas mission workers need to be aware of developments in taxation which may affect you as a result of the publication of the Statutory Residence Test (SRT) which came into force on 6th April 2013 and is causing a lot of concern in the missions community.  This is important as you may find yourself hit with a large income tax bill which you didn’t expect.

The SRT is an attempt to codify into law the various provisions and allowances which have grown up around whether you are considered to be resident in the UK or not.  This is significant because UK residents are taxed on their global income, and non-residents only on their UK income.  The new test may inadvertently catch out some mission workers who receive their income overseas but spend a lengthy time in the UK for home assignment, or to have a baby.   This is because in previous years a rolling total of days in the UK was allowed before becoming automatically resident, so the calculation for residency was an average of more than 90 days per year over a four year period; now it is a total of more than 90 days in any given tax year.

The test has three parts:

  1. whether you are automatically non-resident;
  2. whether you are automatically resident;
  3. if neither of the above, whether you are resident or non-resident according to whether you have sufficient ties to the UK

The details of these are complicated, as you would expect.  We’ve tried to simplify them for you, but make sure you read the provisions for yourself to check your situation.  There are complicated definitions, and special provisions where a stay in the UK straddles two tax years.  But in a nutshell, one tax advisor commented:  “We feel that it is much easier to become unintentionally resident than before, and harder to cease residence again.”

How much will your visit cost you?     (Image: SXC)

How much will your visit cost you? (Image: SXC)

Examples:

You are automatically non-resident if:

  • you have lived and worked abroad for 2 years, and return to the UK every year for no more than 16 days; or
  • you have lived and worked abroad for 4 years, and return to the UK every year for not more than 46 days; or
  • you work full-time abroad and return to the UK for less than 91 days and the number of days on which you do more than 3 hours’ work in the UK is less than 31.

You are automatically resident if:

  • you spend 183 days or more in the UK.  This test is of vital significance for mission workers on home assignment for more than six months; or
  • you have a home in the UK for a period of more than 90 days, and you are present in that home for at least 30 days, and you have no overseas home or an overseas home in which you spend more than 30 days.

To help you through this process, we have produced two flow charts helping you through the tests.  Click on the links below to see a pdf.

Automatic overseas test     Automatic UK test

These are not definitive and you should consult the HMRC website for yourself.  You should take advice from your agency, or if you don’t have one, an accountant.

Our recommendations are that you investigate this situation thoroughly before you spend more than two weeks in the UK, keep records of when you travel to the UK and how many days you spend here, and a log of the amount of working hours you do each day and where you stay.  Craziness!

The fundamental implication of all this is that we may be seeing the end of year-long home assignment (which is a trend already under way anyway).  Anyone who does a home assignment of more than 90 days will clearly be resident and liable to UK taxation.  This of course is no change from the current situation, but the formalisation of the rules will make it harder for agencies and individual mission workers to ‘forget’ them.

You can read the full text of the new provisions here: http://www.hmrc.gov.uk/budget-updates/11dec12/stat-res-test-note.pdf.