What can I do about missing national insurance contributions?

I have recently discovered that I am missing some national insurance contributions for 1978-79. 

Of course, I have no supporting documentation to confirm my employment during this time. However, I know for certain that I was working and I know who my employers were.

I have written to HM Revenue & Customs twice since last October and I am waiting to hear from them. Is there anything I can do to resolve this?

Steve Webb, a partner at consultants LCP, who was UK pensions minister from 2010 to 2015, says it can be incredibly frustrating when you know that you worked and paid national insurance contributions but there are no records of those contributions with HMRC. 

It is clearly not good enough that HMRC are not responding to correspondence and you may well want to ask your local MP to chase them up for a response.

You are not alone in this. Last year the FT reported a similar case which was brought to a satisfactory outcome. In that case, HMRC admitted that they held additional records on “microfilm” which they had not taken into account. One option for you, therefore, would be to insist that they trawl through their records in all formats for evidence of the missing year.

It is worth bearing in mind that there is always an outside chance that although your payslips at the time showed deductions for NI contributions, your employer failed to pass these on for some reason. But if you were employed by the same firm the year before and the year after, and these are shown as qualifying years, then this seems unlikely.

One bit of good news is that it is possible that one missing year in your national insurance record may not actually matter. Broadly speaking, the new state pension is based on 35 years of full rate NI contributions. If we assume that a working life is more like 45 years, you can have several gaps in your NI record and still get a full state pension.

You can check your current state pension forecast at gov.uk/check-state-pension and if this already shows that you are going to get the maximum amount then the missing year — though annoying — may not ultimately cause you any problems.

Your experiences are a reminder to all of us to check our NI records on an ongoing basis. It is now relatively simple to go to the gov.uk website and do this. The great advantage of doing this now is that if there are problems you have a much better chance of having payslips, bank statements and so on, to provide proof. As you have discovered, doing this 40 years after the event is a rather different matter.

Will tax freeze hit my take-home income?

My livelihood is based on buying, renovating and then selling properties which are chargeable for capital gains tax. How will the chancellor’s decision to freeze tax allowances affect my take-home income? Is there anything I can do to reduce any new tax liabilities?

Rebecca Fisher, partner in the private client team at law firm Russell-Cooke, says the Office of Tax Simplification (OTS) last year called for capital gains tax rates to be aligned more closely with income tax rates. For higher-rate taxpayers, CGT remains at 28 per cent on land and buildings. The current personal allowance is £12,300 for 2021-22 and this has been frozen until 2025-26. 

In the past 10 years the rate has increased by £2,200, resulting in an average rise year-on-year of just £220. There is no doubt that the freezing of the allowance will increase tax liabilities for those who base their livelihoods on realising capital growth but overall that increase in the CGT payable will be marginal.

The biggest impact will be if rates rise or, as suggested by the OTS, the annual exemption is reduced to a figure in the region of £2,000-£4,000. That brings it down to levels which have not been seen since 1980.

The options are limited in relation to mitigating the effects of the allowance freeze. It is important to remember that any capital improvements to property can be offset against an increase in value, thereby reducing the amount of CGT payable.

If rates do rise closer to those of income tax, that will have a material impact on profits. It would be an opportune moment to review whether the current model of selling the properties rather than retaining them for income generation is still the right one.

A more radical change would be to run the business through a limited company. Incorporation relief will normally be available so that any charge on the transfer of a sole trader’s existing business to the new limited company is delayed until the trader sells their shares in the company.

However, for a business based on property assets this may not be an attractive proposition for existing projects, as any transfers of property will still be subject to stamp duty land tax (SDLT) based on market value. (On that note, whether any charge to SDLT would arise needs to be monitored as the nil rate band threshold will change through the course of this year.)

Pivoting the business so that future projects are run through a company is also an option. Any capital gains generated within the company would be charged to corporation tax rather than CGT. The headline rate for corporation tax is currently 19 per cent, although rates are scheduled to increase from 2023.

However, you would need to consider this low corporation tax rate carefully against other factors including, crucially, the tax directors and owners will need to pay when extracting money from the company as salary or dividends.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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