A salaried GP, who is an NHS pension scheme member, will pay Class 1 contributions at the contracted out rate – 9.4% (and the employer will also pay a contribution). If the employment is not pensioned, then the rate increases to 11%. In both cases the contribution rate on the slice of income over £844 per week reduces to 1%.
A freelance GP will pay Class 2 national insurance – normally by monthly direct debit* based on £2.40 per week and Class 4 national insurance which is calculated at 8% of profits between £5,715 and £43,875) and then 1% on the excess.
Don’t forget to register as self employed as soon as your self employment starts (there are penalties if you don’t) and make sure that the direct debit is set up and working. Also keep an eye on your bank statements – it is not unknown for the direct debits to suddenly stop for no apparent reason – and then it’s a shock when you get a bill for the arrears.
Also if you stop your freelance work and become wholly salaried – don’t forget to advise the National Insurance office and get the direct debit stopped.
Class 4 NIC is paid with the tax via the self assessment return – so you don’t usually pay it separately or have to make an specific effort to start or stop it (other than to complete the self assessment return of course).
Where however you have both salaried and freelance work, then you may pay too much. In this case you should defer the Class 4 contributions and pay the balance that is needed after the self assessment return has been submitted and the National Insurance office are able to calculate what is due.
You can find the forms to apply to defer Class 4 national insurance on the HMRC website – or ask your accountant to do it for you, if they haven’t already.
If you have already paid too much, then it is possible to make a claim for repayment – and at the moment there is no time limit for how far back you can go. It might be possible to get a substantial refund if there have been high levels of both employed and self employed income in any tax year.
This risk of overpayment will also apply to GP principals with separate employment income and NHS consultants with a private practice.
The rules are not well known, so if your accountant is not a medical specialist it is easy for it to slip through unnoticed. We’ve recently got back more than £4,000 for a doctor in this position. If you think it might apply to you, take action now to reclaim what is yours.
*Late amendment: It has just been announced that from April 2011, Class 2 contributions will be due 6 monthly in January and July – just like the normal tax payments. If monthly payments are preferred, then there will be a gap in collection – so that the April 2011 amount will be collected in August 2011 and then monthly amounts thereafter. The 6 monthly payments may be made by direct debit too, instead of relying on paying a bill. Updates will be send out by the department to people currently paying Class 2 shortly.
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 firstname.lastname@example.org.