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National insurance - how to ensure you don't overpay

In a new series on financial MOTs, accountant Bob Senior advises on national insurance

In a new series on financial MOTs, accountant Bob Senior advises on national insurance

Although people dislike paying tax, they generally expect that HM Revenue and Customs will sort out what they owe.

And generally they are confident that if they have paid too much tax they will at some point receive a refund for the overpayment.

They assume that the same system operates for National Insurance.

Sadly it doesn't.

GP Partners as self employed individuals will routinely pay the following National Insurance:-

• Class 2 Contributions £2.20 per week on a monthly basis

• Class 4 Contributions

- 8% of profits between £5,225 and £34,840 plus 1% of profits over £34,840

- Usually paid in January and July with Income Tax payments

They will also pay Class 1 National Insurance on any income where they are taxed under PAYE, such as:

• Clinical assistant or GPWSI posts

• Bed funds

• PCT board members

• LMC posts

• PBC provider company directorship

Class 1 contributions will be payable at 11% on such income between £5,225 p.a. and £34,840 per annum, with 1% being payable on income over £34,840.

Because Class 1 Contributions are calculated by the various employers separately, each calculation is by default done in total isolation without any reference to what else the GP is doing.

So what is the problem?

The problem is that there is effectively a ceiling on the National Insurance contributions that an individual needs to pay in any tax year.

If however they are having contributions made from a variety of sources, they could find themselves paying more than they need to, and getting no extra benefit from doing so.

And the really big difference between Tax and National Insurance is that the Inland Revenue NI Contributions office will not routinely work out if someone has overpaid National Insurance and automatically send them a refund.

You have to work out for yourself if you have overpaid and then apply for a refund.

The easiest way to reduce the chance of this happening for most GP's is to apply to defer their Class 4 contributions.

That means that contributions will automatically be taken from any salaried jobs but Class 4 Contributions will not automatically be paid along with any Schedule D tax in January and July.

The Contributions office will calculate how much has been paid from salaried posts in any year and from that work out how much is owed in relation to the self employed income.

They will then issue a bill for the balance due some time later – how much later depending on their workload!

A similar situation arises where a doctor has two substantial salaried jobs.

If nothing is done, then routine Class 1 Contributions will be taken from each job.

Again the Contributions office will not automatically spot that the GP may have made more than the maximum contributions in a year.

To avoid this situation one job would be designated the ‘primary' job and contributions can be deducted as usual, while only a 1% contribution is taken for the second job.

An annual setting up process for any balance of contributions due would be done in due course.

Bob Senior is vice-chair of the Association of Independent Specialist Medical Accountants and director of medical services at Tenon, the UK's third largest medical accountant

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