Actually, on the specific example he gave, it's just struck me that he's right, but it was a disingenuous example which almost certainly has no bearing on your wife's case.
Qualifying earnings are those on which *full rate* class 1 contributions have been (or are treated as having been) paid. Not only does this mean that pay below LEL in any week does not qualify, but also that pay above UEL is disregarded. So having earned £4108 in one week, this represents qualifying earnings of only £610. With no earnings in the rest of the year, it would therefore not qualify.
You old scoundrel, Doug. You were just testing me, and I fell straight into the trap. Thanks for giving me time to dig myself out without help.
So to determine whether a year "qualifies", NICO take all your P60s for the year and accumulate the totals in boxes 1a, 1b and 1c; it qualifies unless this total is less than 4108 (for 2004/05). Is this correct?
Darn! I have been negotiating with B&Q for a job lot of shovels. :)
NP46 is a bit ambiguous, and I have not had a chance to refer to the Act itself. However, that has always been my understanding of the importance of Earnings Periods.
The Act doesn't use the term "Earnings Period" as such, if the HMSO search engine can be trusted. It's inconvenient to search the whole act since it's broken up into bits and it's too tedious to search them all individually. It does mention periods here and there, but from a cursory glance it does not intend them to be counted for the purpose of determining whether and to what extent a contributor qualifies for benefits.
My understanding of the relevance of earnings periods is that it is necessary to determine the usual frequency of payment. This is either weekly, 2-weekly, 4-weekly, monthly, etc. So where only a single payment of £4108 is made, then the amount of qualifying earnings it contains would depend on what this employment's earnings period was.
If it is the year (as would be deemed the case for directors), then all of it would qualify. If it's the week, then £610 would qualify. If it's the month, then £2643(ish) would qualify.
So it does, but it seems to be purely for the purpose of determining what the relevant LEL etc should be, and thence how much of each pay packet should be deducted as C1NI, and indirectly therefore how much counts as qualifying earnings for benefit purposes. There doesn't appear to be a suggestion anywhere that there are such things as qualifying earnings periods of which you'd need to have as many as a year actually contains (which is what I think you're suggesting).
NP46 seems to be unambiguous that for a year to qualify (supposing you are weekly-paid) you need qualifying *earnings* totalling at least 52 times the weekly LEL, *not* that you need to clock up 52 actual weeks in each of which you have received QE of at least the LEL.
Incidentally, and speaking of ambiguity as you too were, the wording in
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--quote There is no payment of Class 1 NICs on earnings up to the Earnings Thresholds (the Primary and Secondary Thresholds - see NIM01008). However, once earnings reach the Lower Earnings Limit ('LEL' - see NIM01005) employee contributions are treated as having been paid on earnings from the LEL up to and including the Primary Threshold. This provision protects the benefit entitlement position of those earning above the Lower Earnings Limit who would have been removed from paying NICs by the introduction of the Primary Threshold (see NIM01012).
--unquote
and in particular the bit in the middle, "from the LEL up to...the PT" is ambiguous, and suggests that contributions are treated as having been paid only on the difference between LEL and PT, and not, as I had assumed, on the entire PT. Elsewhere, the phrase "at the LEL" is used, which suggests the whole sum is so treated.
Example:
The LEL is £79, PT is £91, someone earns £100 a week, and therefore pays C1NI on earnings of £9. Are his qualifying earnings that week £100 or £21?
I assume it is the former. If it's the latter, an employee with non-fluctuating income would actually need to earn £8216 in order to have £4108 of QE to make a year qualify. That's surely not what's intended. I assume the intention is that anyone earning between the LEL and PT pays no NI but is credited with full BSP entitlement.
I could be wrong, as it does not seem logical to treat differently individuals with the same earnings, merely due to payment timing.
I have not had to address the question in the past, as most (all?) of my clients who are paid around the LEL margin are directors. And it had been more to do with minimising NI than exploiting the LEL aspect.
What do you mean "at last"? This is pretty well what I said right at the beginning (except for forgetting to point out that earnings above the UEL don't count).
But this happens all the time with NI contributions paid :
E.g. a large bonus in one payslip - for a non-director - is "capped" with a lot of the amount only liable to 1% NI, whereas if that were paid evenly across the year the NI conts could easily be 11% of the lot ...
To top off this mood of congratulation, can someone please confirm whether or not this summary, which I posted earlier, is correct:
So to determine whether a year "qualifies", NICO take all your P60s for the year and accumulate the totals in boxes 1a, 1b and 1c; it qualifies unless this total is less than 4108 (for 2004/05). Is this correct?
Box 1a is earnings at the LEL, accumulated only for periods where pay has reached that level. Box 1b is earnings above the LEL up to the ET (apparently now called the PT). Box 1c is earnings above the ET/PT, up to & including the UEL.
So we are EXCLUDING pay which failed to reach the LEL, and pay which exceeded the UEL, in any pay period; such pay is not recorded on the P60 and is accordingly invisible to NICO.
True. But the LEL "loophole" was brought in, AFAIK, to protect those who had low earnings in a particular tax year to still qualify for state benefits. So, 4108 = 4108 no matter how it's calculated?
I think so, except that P60 does not use 1a/1b/1c labels any longer.
You seem to be adopting the box labels 1a/1b/1c from P11. I've looked at some of my old P60s, and they do use such labels, but with completely different meanings. For instance, for 1997/98:
1a: Earnings on which employee's contributions payable
1b: Total of employer's and employee's contributions
1c: Employee's contributions payable
1d, 1e: something else again
To be more exact, we are not excluding pay which exceeded the UEL, but we are only excluding the excess over the UEL of that pay. :-)
Wasn't the "Primary Threshold" the real "loophole"? [I.e. not really a "LEL loophole".]
People earning just over the LEL have (AFAIK) always qualified for BSP - it was the PT (higher than LEL) that brought in the loophole of being able to qualify without actually paying any NI conts ...
The last year for which those labels applied was 1998-99. From 1999-00 onwards they have been as I quoted, with the odd minor change for clarity. My 2003-04 P60 was printed from a PDF generated by the IR's online SA system, and was labelled exactly as I gave it above. There'd be a problem if the box labels for the P11 and the P60 differed!
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