Are you unknowingly overpaying national insurance?

You may be paying too much national insurance! Read on to find out more.....

Very few ordinary taxpayers know that there is a limit on how much national insurance they are required to pay annually and it is easy for the annual maximum threshold to be breached.

This is unlikely to affect the majority of people with one source of earned income (either via employment or self employment) as the national insurance is simply calculated on those earnings alone. However, if the individual has more than one source of earned income, they will liable to pay national insurance on both sources and because they are paying national insurance twice, they may unknowingly breach the limit and pay more national insurance than they are required.


So when exactly does it apply?

Overpayments of national insurance can arise in the following scenarios:

a)      You have two employments with substantial earnings in the same tax year.

b)      You are both employed and also self-employed in the same tax year.

If you fall into either of the above categories then you may be unaware that you are overpaying national insurance.


But my accountant deals with my taxes......

Whilst you may assume that your accountant has undertaken a review to see if you have overpaid, you may be making a mistake by assuming this is the case as software packages that produce Tax Returns do not calculate overpayments of national insurance.

Indeed, it may the case that the accountant uses the HMRC software to file your Return, which again will not calculate overpayments of national insurance.

Or it may be the case that you are filing your own Return and have never even considered this. Luckily for our clients we do undertake a review of national insurance when preparing their Tax Return and we have a bespoke calculator which calculates if the maximum has been breached and an overpayment has arisen.


What are the typical scenarios?

Under scenario a) we typically see directors working for one or more businesses and receiving two large salaries both of which are being taxed under PAYE.

But the more frequent scenario that we see in practice is scenario b) where an individual is both employed and self employed during a tax year.

This could be for example a GP who is a partner in a Doctors practice but also carries out some work for the local hospital and is paid under PAYE for that work.