Introduction to Income Tax and NICs National Insurance contributions
The employee applies for deferment on form CA72A, which is found in leaflet CA72. On acceptance, the National Insurance Contributions and Employer Office of HMRC (NICEO) issues certificate CA2700 to the employer(s) concerned. Where certificate CA2700 has been issued for a tax year, the employee will pay NICs at 2% (for 2023-24) on all earnings above the Primary Threshold (PT) for that tax year. The employer continues to pay NICs normally in accordance with whatever NICs category applies. The certificate is valid for that tax year only; the employer must move to employee onto a different category letter at the start of the next tax year unless another CA2700 is issued.
Reduced rate
Until 11 May 1977, married women and widows could elect to pay reduced rate NICs (formerly and often still kn own as the ‘small stamp’). These NICs do not count for benefits or pensions. They reflect the now obsolete convention whereby most married women and widows relied on their husband’s contributions to provide them with a pension.
Although the right to choose reduced rate ceased long ago, those who made an election by 11 May 1977 can continue to pay reduced rate so long as:
• They remain married or were still married when widowed
• If widowed, then they subsequently receive State Bereavement benefits
• There is no break in NICs liability (because of low earnings or gap in employment) of two (or more) consecutive and complete tax years. (This is known as the two-year test.)
In the event that any of these changed, the right to pay the reduced rate is permanently lost. A woman can also revoke her election voluntarily.
It is imperative that the employer holds a valid CA4139 (formerly CF383) Certificate of Reduced Rate liability and that the employee informs her employer of any relevant change in circumstances, such as divorce. Further details are available in HMRC’s CWG2 bookl et ‘ Employer Further Guide to PAYE and NICs ’ . Large employers must make sure that a process exists for passing relevant information to the Payroll office. It is common to find that a woman notified her immediate superior, but that the information was never relayed onwards to Payroll because its significance was not appreciated. In such cases, the employer would be liable for the full amount of any underpaid NICs.
If in doubt, then revert to standard rate NICs immediately and contact HMRC’s NICEO for confirmation of continuing reduced rate liability.
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