Are you entitled to a National Insurance refund?

Greg Penfold is an accountant with Humphrey & Co., chartered accountants, business and tax advisers. He specialises in acting for dentists and is a member of the Association of Specialist Providers to Dentists( ASPD).

If you are a dentist that has been or is currently both employed and self-employed, then at some point you will have been paying three types of National Insurance. Class 1 National Insurance is applied to employment income, and on self-employed earnings, Classes 2 and 4 are applied.

Situations often arise whereby dentists are both employed and self-employed within the same tax year, and this could mean that they are overpaying their Class 4 National Insurance without realising it.

Class 1 National Insurance means that 11% is paid on an income over £5,435 up to £40,040, after which you pay 1% for 2008/2009. Class 2 National Insurance works out at £2.30 per week for 2008/2009 and Class 4 at 8% on taxable profits over £5,435 up to £40,040 after which you pay 1% for 2008/2009. Additionally, dentists working within the NHS will most likely be paying superannuation on their income. If this is the case, then they will pay a contracted out rate of National Insurance at 9.4% on income between £5,435 and £40,040 with a small rebate of 1.6%on income between £4,680 and £5,435.

The likelihood is that if somebody has been employed and self-employed during the same tax year, for example a former vocational dentist practitioner that became an associate during the same year, or a dentist that lectures and works in practice, then they will have paid all three types of National Insurance.

Many people may not be aware of the fact that there is actually a limit to how much National Insurance you have to pay when paying Class 1, 2 and 4. For instance, ‘Where Class 4 contributions are payable in addition to Class 1 and Class 2 contributions, the liability for Class 4 cannot exceed such an amount as, when added to the Class 1 and Class 2, contributions payable equals the limiting amount.’ The limiting amount is based on the maximum amount payable, up to £40,040 (plus 1% over this amount) plus 53 Class 2 contributions.

In 2008/2009, the limiting amounts were as follows:

Class 1 or Class 1/Class 2 £3,876.95
– plus rate on earnings over £40,040 1%

Class 4
– plus rate on taxable profits above £2,890.30
£40,040 1%

Due to the complicated calculations that are based on taxable profits from self-employment as well as any Class 1 National Insurance that will have been paid during your employment, it is extremely easy to loose track and end up paying too much. If this is the case, then you will be entitled to claim for a National Insurance refund. As the limiting amount is unfixed, you cannot pay too much by being either only employed, or only self-employed.

If you believe that you are entitled to a refund then you must apply for a Class Four National Insurance refund, as HM Revenue and Customs will not repay any National Insurance refunds otherwise. It is also worth noting that if you know you are going to be both employed and self-employed within any given year, you can request a deferment of Classes 2 and 4 for that particular year. If you are currently both employed and self-employed and do not have a deferment in place then you may well be paying too much National Insurance.

For some individuals, the situation arises whereby they cease to be employed during the course of a year and take up self-employment. If this is the case then it is imperative that payslips are held onto as evidence. The reason for this is that P45s received from employers upon leaving employment do not detail the amount of Class 1 National Insurance paid.

National Insurance refund claims can now be made for 2008/2009. If you know that you are going to be employed and self-employed in the coming year then it is necessary that you apply for National Insurance deferment in 2010/2011. However, this must be done before the 5th of April 2010.

If you or somebody that you know needs assistance with a National Insurance refund claim or deferment then Humphrey & Co Chartered Accountants can help. The firm has been practising since 1928 and has considerable expertise in the provision of taxation, financial and business advice. Committed to providing approachable, professional customer service and practical, straightforward advice to all their customers, Humphrey & Co can help you today.
Humphrey & Co is a member of the Association of Specialist Providers to Dentists (ASPD). The ASPD is a network of professionals who specialise in providing services to the dental profession. It was founded in 1999 and was formed to provide dentists with an index of professional and reliable businesses that have specialist knowledge of the requirements of today’s busy practices and who are dedicated to serving the dental market.


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