National Insurance underpayments, overpayments and deferments
28th January 2019 by Robin Beadle
The PAYE system has been operating in virtually the same manner since its introduction in 1944 – mainly due to its perennial ease of use and, if HMRC are up to date, its ability to make in-year tax rate changes as someone’s affairs evolve. But whilst a PAYE code for income tax can take into account multiple employments and spread your allowances and tax bands between different sources, the National Insurance rules still treat each employment in isolation to every other. It is this isolationism which can cause problems.
Broadly, there are two possible problems with your National Insurance Contributions (NIC) – underpaying and overpaying.
Underpayments of NIC can occur either through your affairs not being up to date or more frequently if you have more than one part-time employment. For example, were you to have two employments paying £120 per week each, you would pay no NIC on your £240 per week earnings, whereas an employee with only one job paying the same £240 per week would pay £9.36pw NIC (using 2018/19 rates). Whilst it may not sound much, that £9.36pw would credit towards Statutory Sick Pay, Statutory Maternity Pay and more importantly, a credit towards your Retirement Pension. These sorts of underpayments of NIC can often be rectified if your circumstances permit – either by possibly changing the hours you work for an employer, or alternatively by making Class 3 Voluntary National Insurance Contributions (which are also useful for those who have either been abroad or have been undertaking, say, unpaid charity work, in order to increase their entitlements).
Overpayments of National Insurance usually occur when you have more than one employment, or a combination of employment and self-employment. The rate of NIC decreases to 2% as your total earnings pass the upper limits. (The upper limits vary slightly: for employments this is £46,384pa in 2018/19 but for self-employment the point is at £46,350pa). If you had more than one employment/self-employment combination the fact that each employment’s exposure to NIC is calculated in isolation to another can easily mean that instead of dropping to the 2% rate, you continue to pay at the higher 9% (Class 4 self-employed) or 12% (Class 1 employee) rates. Whilst overpayments of NIC are sometimes repaid automatically (as they very rarely entitle you to any extra benefits), the process is speeded up dramatically if you make a claim – though there are, of course, time limits for making claims so do not delay.
If you know in advance of the tax year that you are likely to overpay NIC as a result of either two or more employments, or an employment/self-employment combination, you can apply for a “Deferment of National Insurance”. This will mean that you will pay a restricted amount of during the year and the Contributions Office will send you a bill for any balance once the tax year has passed. This will prevent overpayments and give you better cash-flow.
And finally, whilst this may seem obvious, please check that your NI number is correct both on any correspondence and on any P60s that you receive. After all, you do not want the NIC you pay to go to help someone else’s contribution record at your expense.
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