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I submitted query 20,071 (tinyurl.com/2wsxest4) about a self-employed client who took on a part-time office. Following the advice given, she has not opted to treat the income from the office as a part of her self-employment.
During the 2023-24 tax year, her self-employed profits were in the region of £250,000 and she received £25,000 taxed through PAYE since July 2023 (in roughly equal monthly payments). It has been some time since the cap on National Insurance contributions (NICs) was removed, but I still understand there to be provisions to ensure that higher earners do not overpay NICs.
My research suggests that relief can be obtained through the self assessment return but I am unsure how to claim it. Do the rules look at the total NICs paid (and is it both primary and secondary contributions) or do you need to consider things on a monthly basis?
Query 20,365 – Planner.
The client can choose from two courses of action.
Dear Planner, based on the detail you have provided it does look that the overpayment occurs in relation to overpaid class 4 National Insurance.
In the circumstances, the level of earnings falls below the upper earnings period but if they had exceeded this level then HMRC could have been contacted for an agreement not to pay employee’s class 1 National Insurance. But while you could still do this, it would not solve the problem because your client would still be left overpaying National Insurance.
Looking at the HMRC guidance it does suggest in circumstances like those of your client when you file a self-assessment return you should receive guidance over what to do in respect of class 4 National Insurance to avoid overpaying. It appears that while you have filed a self-assessment return which should highlight the potential issue, HMRC has not been in touch.
There are two ways you can proceed:
- you can contact HMRC on 0300 200 3500 and ask the department to now give the advice you were expecting to receive having filed the self-assessment return; or
- you can write to: HMRC National Insurance Contributions, Employer Office, HMRC, BX9 1AN.
You should be asking that the department now sort out the overpayment of National Insurance.
It is annoying that, while the HMRC tax systems automatically flag an overpayment of income tax the same is not the case for National Insurance. – Alastair Kendrick.
HMRC’s NICs refund tool is a more efficient way to get the same result.
Avoiding overpaying National Insurance contributions (NICs) has become more complex over time, especially since HMRC ceased to offer the option to defer class 2 and class 4 NICs in 2015-16 (a deferment allowed payment at the lowest marginal rate until all earnings were known, facilitating a true-up).
This means that nowadays, where class 1 NICs have not been deferred, there is no choice but to apply for a refund of class 4 NICs. In my experience, this simply isn’t practical through the self-assessment system and therefore using HMRC’s NICs refund tool is a more efficient way of achieving the same result. I would suggest that Planner does this on behalf of their client online at: tinyurl.com/Class4Refunds.
A postal option is also available but is currently subject to significant delays.
It is important to claim the class 4 NICs back as the order of precedence given in reg 52A of the 2001 Social Security Regulations specifies a specific order for refunds. A refund application for class 1 NIC is likely to be denied, even if it is for the same sum.
Regarding the aggregation method, there is no requirement to consider a monthly limit. Only the class 1 primary contributions are factored into the analysis, so any class 1 secondary contributions paid by the entity of which the taxpayer is an office holder can be ignored. There is a useful step-by-step guide regarding how to compute the maximum calculations available in the HMRC National Insurance Manual at tinyurl.com/Class4NICManual.
Care should be taken following the steps given two significant changes which will impact different tax years. Firstly, the transitional provisions which applied in 2022-23 as a result of the introduction and repeal of the health and social care levy substitute new values for that tax year. Secondly, the changes to class 2 NICs from 6 April 2024 means that several steps of the computation are now amended. – Matt Crawford, partner, Blick Rothenberg.
