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Could you be Overpaying your National Insurance?

Many high earners (who earn over £50k), who have more than one source of income which are subject to NI have been overpaying.

In the current tax year the NI rates and thresholds are as follows:

• Class 1 (paid by employees) – 12% on earnings between £8,632 and £50,000 and 2% thereafter.

• Class 4 (Paid by those who are self-employed) – 9% on profits between £8,632 and £50,000 and 2% thereafter.

In order to ensure a person with earnings from both an employment and self-employment does not pay more NI than a person who has a similar level of earnings from only one employment, the Class 4 NI payable is sometimes restricted.

The objective is to limit the self-employed profits charged at the main 9% rate to the employee-only equivalent, but still leave higher earnings charged at the uncapped 2% rate. The reduced Class 4 liability can only be calculated through a complicated series of steps as outlined in HMRC’s manuals.

The easiest way of ensuring that the correct level of national insurance is paid on all sources of income is to manually adjust it on your Self-Assessment tax return, it is also possible to review earlier years and obtain a refund from HMRC.

As an example, someone with employment income of £50,000 and self employed profits of £20,000 could be due a refund of up to £800 per annum.

If you feel this is something that may have affected you, then contact us and we can advise you if a claim is possible.