Given the multiple changes to NI rates and thresholds in 2022/23, the risk of overpayment has never been so high. You could now be due a welcome NI refund. How can you get this money back?
An annual cap, known as the annual maximum, applies to a worker’s NI whether they have multiple employments within the tax year, or are both employed and self-employed (either successively or concurrently). Unlike income tax, the onus is very much on the worker to check whether they have overpaid NI and then to claim any refund due. Incredibly, HMRC has no mechanism to check the accuracy of NI payments nor any facility to provide an automatic NI refund .
Pro advice. Employees over state pension age should not be paying any Class 1 primary NI at all.
As the usual NI deductions made under PAYE only consider each employment in isolation for each earnings period, it is very possible that an employee will overpay Class 1 NI for the tax year overall. This is where the annual maximum, set by SI 2001/1004 Reg 21 (see Follow up), needs to be calculated based on each individual’s circumstances, i.e. there is no overall universal figure.
Why is 2022/23 important?
In 2022/23, the primary Class NI thresholds and rates changed twice mid-year (see Follow up) which not only makes the calculation of the annual cap more complex but makes it far more likely that mistakes have occurred during the normal payroll process.
Pro advice. It would be wise to check your NI for 2022/23 when completing your tax returns, even those with just one job.
Fortunately, in order to simplify matters where there are multiple employments, annualised rates of 12.73% and 2.73% now apply for 2022/23.
Pro advice. There are special rules for directors, including an annual earnings period where the annualised rates of 12.73% and 2.73% also apply for 2022/23.
Example. Max had two jobs in 2022/23, earning £55,000 in one and £30,000 in the other. She paid primary Class 1 NI of £5,016.46 in respect of the first job. She also paid contributions of £2,307.37 in respect of the job paying £30,000 per year. Her total Class 1 liability in respect of both jobs was therefore £7,323.83.
However, if she had earned £85,000 from just one job in 2022/23, she would have paid total Class 1 NI of just £5,835.21. This is because a greater proportion of the earnings in multiple employments are liable to the main rate of NI.
The actual annual maximum calculation produces a Class 1 NI liability of £5,927.34 and so Max is due a refund of £1,396.49 for 2022/23.
Obtain a refund
For 2022/23, HMRC is able to make a quick refund where the wrong rate has been used by the employer since November, and “NILEVY061122” should be quoted on any claim. In any other case, particularly where the annual maximum has been exceeded, an NI refund can be claimed after the end of the tax year by writing to HMRC (see Follow up).
Pro advice. For employees with more than one job, there is no time limit for making the refund claim.
Looking ahead, overpayments could be avoided by applying for a deferment where the level of earnings from one job is at least equal to the upper earnings limit. It is also possible to defer where the combined earnings per month meets the following thresholds:
|Number of employments||23/24 monthly thresholds (£)|
Example. Ben has three jobs earning the following monthly amounts:
Job 1 - £3,000
Job 2 - £2,500
Job 3 - £1,000
The total earnings from Jobs 1 and 2 are £5,500 which exceeds the monthly threshold of £5,237 applicable to two employments. Hence Ben should apply to defer NI on Job 3 so that he pays NI at only 2% on those earnings.
Class 1 deferral
Deferment applications are made on Form CA72A (see Follow up). If approved by HMRC, the employer will receive certificate CA2700 which authorises Class 1 primary NI deductions to be made at the 2% rate (normally by using Table J) instead of 12% for the stated tax year only. If the tax year has already started, the employer will need to recalculate all Class 1 primary NI deductions in every prior earnings period within that tax year and refund the difference to the employee.
Pro advice. Although the employee ideally applies before the start of the relevant tax year, it is possible to obtain deferment approval mid-year.
Employed and self-employed
Where a worker is employed and self-employed in the same tax year, there are annual caps on the combined Class 1 and Class 2 liability which should be considered first, before looking at the overall liability including Class 4 as well.
The annual maximum for Class 1 and Class 2 NI is 53 weeks of the Class 1 main rate up to the upper earnings limit, with an additional amount on any excess earnings. For 2022/23, the calculation is the sum of:
12.73% of £39,114 (being 53 weeks of the amount between the weekly thresholds, £967 - £229); plus
2.73% on at all earnings exceeding £39,114.
As Class 2 NI is calculated when preparing the self-assessment and paid in arrears, i.e. by 31 January 2024 for 2022/23, it is important to check the annual maximum has not already been exceeded by Class 1 NI alone.
Pro advice. Remember that Class 2 NI is now only payable where profits exceed the lower profits limit (£11,908 in 2022/23).
Avoiding Class 4 overpayment
The annual maximum applying to Class 4 NI looks at the total NI paid under Class 1, Class 2 and Class 4. The calculation is complex and involves a nine-step process (for HMRC guidance see Follow up).
Pro advice. Without a specialist review, any overpayment is likely to remain undetected by either the client or HMRC.
Another potential pitfall is the more flexible use of losses under the tax rules. Where a trading loss has been set against general income for tax purposes, an adjustment will be necessary to reduce trading profits for NI purposes. A loss carry back claim will require a recalculation of the NI liability for the previous tax year.
Pro advice. It is vital that a separate record of trading losses is maintained for Class 4 NI purposes.
For Class 4 NI cases involving more than just a single self-employment, there is a substantial risk of overpayment. Again, with no HMRC oversight, it is up to the individual to make a separate online application using Form CA5610 (see Follow up) with no time limit restriction.
Pro advice. Unfortunately, deferment of Class 4 is no longer possible.
The frequent changes occurring in 2022/23 will have inevitably led to errors as well as compounding the difficulties when calculating an individual’s annual maximum. Carefully check the NI paid by all clients and make a written refund claim in respect of any overpayments. Consider applying for deferment in cases of multiple employments.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.