It’s a while since I’ve written about National Insurance and, with rates and contribution ceilings increasing over the years, this is an expensive additional tax, so more than ever you don’t want to be paying more than you need.
There are 4 classes of National Insurance contributions:
- Class 1 – payable by employees and employers – paid via PAYE – so you earn your pay net.
- Class 2 – payable by the self employed (flat rate) – payable on the issue of a bill or by direct debit
- Class 3 – voluntary contributions (unlikely to be relevant to doctors generally)
- Class 4 – payable by the self employed (profits based) – payable via your self assessment return.
So a doctor with a salaried appointment and some freelance work could be paying Classes 1, 2, and 4.
The rates for Class 1 (just for the employee, and assuming a member of the NHS pension scheme) are:
- to £139 per week – 0%
- From £139.01 to £770 per week – 10.4%
- From £770.01 to £817 per week – 12%
- Over £817 per week – 2%
Class 2 contributions are £2.50 per week
Class 4 contributions are:
- Up to £7,225 pa – 0%
- From £7,226 – £42,475 – 9%
- Over £42,475 – 2%
A locum GP earning net self employed income of £70,000 would pay:
- Class 2 of £130
- Class 4 of £3,723
That’s nearly £4,000 of contributions which earn you very little by way of benefits other than a basic state pension – it’s really just another tax.
To make it worse, if you have both employment earnings and self employed earnings you are likely to pay too much National Insurance – but unless you ask for it back, no-one is likely to offer you a refund (although, to be fair, the Revenue have been picking up overpayments where there are multiple employments in recent years). We’ve found that even otherwise excellent accountants can miss this, unless they specialise in doctors and come across it regularly. We recently obtained a refund of over £11,000 in overpaid National Insurance contributions for a new doctor client.
Where you know before submitting your tax return that you are likely to pay over the limit, then you can ask to defer the Class 4 NIC and pay this separately after your return has been completed and when you know what the maximum will be.
Similarly, if you have two employments and risk overpaying, you can apply to defer contributions on one of them.
This will also apply to doctors in their first year of self employment – where they are employed for the first half of the year and then self employed for the second half – so it is something always to consider on your first tax return, if not before.
There is no time limit for claiming back overpaid National Insurance where you had two jobs or where you had both employment and self employment – so even if it’s a long time ago, provided you can find proof of your income and contributions paid, it is well worth revisiting and making a claim.
Liz Densley is medical specialist partner with Sussex Chartered Accountants, Honey Barrett, and is secretary of AISMA (the Association of Independent Specialist Medical Accountants). Contact her at email@example.com.