NIM75001 - Class 2 National Insurance contributions: Maternity Allowance: Background
Regulation 90(ZA) of the Social Security (Contributions) Regulations (SSCR) 2001 (SI 2001 No. 1004)
Regulation 7 of the Social Security (Class 2 National Insurance Contributions Increase of Threshold) Regulations 2022 (SI 2022 No. 1329)
Maternity Allowance (MA) is administered by the Department for Work and Pensions (DWP).
Maternity Allowance is paid at 2 rates, the standard rate and the lower rate. For details of current rates, see www.gov.uk
To receive the standard rate of MA, a self-employed woman has to pass 2 tests:
1. The Employment test - been self-employed for any 26 weeks in the 66 weeks preceding the week in which the baby is due, and
2. The Earnings test - paid Class 2 NICs in respect of at least 13 of the 66 weeks preceding the week in which the baby is due.
Periods before 6 April 2015
Any woman who, by the date of her MA claim, had not paid the required number of Class 2 NICs to obtain MA at the standard rate (either through non-compliance, or because she had applied for and been granted a Small Earnings Exception (SEE - see NIM21000), could approach HMRC to make the payment ahead of the normal payment date, or to pay arrears.
There were 2 conditions to be satisfied to enable payment of Class 2 NICs:
- The 13 weeks of self-employment for which payment was being made must already have passed (in other words the liability must already have existed for those weeks); and
- If held, the woman had to surrender her right to the SEE, making her liable to pay Class 2 NICs - such a surrender could not be retrospective, meaning that the woman must then await the expiry of 13 weeks of self-employment before payment
Even if the woman paid Class 2 NICs in respect of 13 weeks, if those weeks fell in a period when she had a SEE then she would only be entitled to MA at the lower rate.
Also, a woman who participated in the self-employed business of her spouse or civil partner was entitled to MA at the lower rate if she participated in that business for at least 26 weeks in the 66 week period before her baby was due, and her spouse or civil partner had been self-employed for 26 weeks and had a liability for (and had paid) Class 2 NICs for 26 weeks in the 66 week period.
Periods from 6 April 2015
From 6 April 2015, a Class 2 NICs liability only arises where a self-employed earner has relevant profits for the tax year at, or above, the small profits threshold (SPT - see NIM70300). There will effectively be three groups of self-employed earners:
1. those who have relevant profits at or above the SPT and are liable for Class 2 NICs
2. those who have profits below the SPT – this group can pay Class 2 NICs on a voluntary basis
3. those who have no relevant profits because they are not engaged in a trade, profession or vocation – this group can pay Class 2 NICs on a voluntary basis
Profits for those in groups 1 and 2 cannot be established until after the end of the tax year, nor can liability be determined until after the tax year has ended and the Self Assessment (SA) tax return filed. As a consequence, in year payment of Class 2 NICs is no longer permitted for these self-employed earners. Payment is made through the existing SA system by 31 January (10 months after the tax year has ended).
From 6 April 2015, a self-employed woman will still be required to pay Class 2 NICs in respect of 13 weeks of self-employment in the period of 66 weeks before her baby is due for entitlement to standard rate MA. However, no distinction will be made between Class 2 NICs paid as a result of a liability, and those paid on a voluntary basis.
If a woman has been self-employed for 26 weeks in the 66 week test period before her baby is due, she will be automatically entitled to lower rate MA regardless of whether she has paid any Class 2 NICs.
In the majority of cases, enough of the 66 week test period for MA will be covered by Class 2 NICs through the previous year’s SA return for a woman to be entitled to MA at the standard rate. However, there will be situations (for example, those who only recently became self-employed) when a self-employed woman needs to pay Class 2 NICs either before the relevant tax year has ended, or after the relevant tax year has ended but before she can file her SA tax return (see NIM75002).
Note: a woman who participates in the business of her self-employed spouse or civil partner will now also be eligible for lower rate MA if the spouse/civil partner has paid Class 2 NICs for 26 weeks in the 66 week period on a voluntary basis.
Periods from 6 April 2022 onwards
From 6 April 2022 a new threshold was introduced to assess liability to pay Class 2 NICs, the Lower Profits Threshold (LPT).
A self-employed person who has profits above the LPT is liable to pay Class 2 NICs.
A self-employed person who has profits from the SPT to the LPT will not need to pay Class 2 NICs, their contributions are treated as paid to protect their entitlement to contributory benefits.
A self-employed person who has profits under the SPT is still entitled to pay Class 2 NICs voluntarily.
Where a self-employed woman has paid Class 2 NICs to receive the standard rate of MA and after filing her SA returns has profits from the SPT to the LPT, she will be entitled to a refund of the Class 2 NICs paid.
Periods from 6 April 2024 onwards
From 6 April 2024 the LPT was removed along with any liabiity to pay Class 2 NICs.
A self-employed person who has profits at or above the SPT will have their Class 2 contributions treated as paid to protect their entitlement to contributory benefits.
A self-employed person who has profits under the SPT is still entitled to pay Class 2 NICs voluntarily.
Where a self-employed woman has paid Class 2 NICs to receive the standard rate of MA and after filing her SA returns has profits at or above the SPT, she will be entitled to a refund of the Class 2 NICs paid.