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Wednesday, 10 February 2010

Money, tax and benefits

Money, tax and benefits

Claiming back overpaid National Insurance contributions

Whether you're employed or self-employed, there's a limit to the amount of National Insurance contributions you need to pay each tax year. If you overpay or wrongly pay National Insurance contributions you can claim the money back.

Paying National Insurance contributions

You pay National Insurance contributions if you are an employee or are self-employed, and you are aged 16 to State Pension age (currently 65 for men and 60 for women), providing your earnings are over a certain level. Entitlement to some benefits, such as the State Pension and Jobseeker's Allowance, depends on the type and amount of National Insurance contributions you have paid or been credited with.

The following amounts apply for the 2009-10 tax year.

If you're employed

If you earn above £110 a week (the 'primary threshold') you pay 11 per cent on the excess over £110 as 'Class 1' National Insurance contributions up to the upper limit of £844 earnings per week. You also pay 1 per cent of earnings above £844 a week as Class 1 National Insurance contributions. Below £110 you pay no National Insurance contributions.

If you're self-employed

You pay 'Class 2' National Insurance contributions at a weekly rate of £2.40. However, if your earnings in the 2009-10 tax year are expected to be less than £5,075 then you may be entitled to the Small Earnings Exception and not pay Class 2 National Insurance contributions. You can apply for Small Earnings Exception for the 2009-10 tax year on form CF10 Application for exception from liability for Class 2 contributions. Class 2 National Insurance contributions must be paid unless you apply for, and are issued with, a certificate of exception.

In addition to Class 2 National Insurance contributions, you also pay 'Class 4' National Insurance contributions on a percentage of your profits. You pay 8 per cent on annual profits between £5,715 and £43,875 and 1 per cent on any profit over £43,875.

Class 4 National Insurance contributions are an annual charge and are paid along with tax through the Self Assessment system in two 'payments on account' and (if appropriate) a final 'balancing charge'.

Because they are an annual charge you will still have to pay Class 4 National Insurance contributions on any profits for the year in which you reach State Pension age. For example, if you reach State Pension age on 1 May 2009 you will still have to pay Class 4 National Insurance contributions on all of your annual profits above £5,715 for the 2009-10 year, but will be exempt from Class 4 National Insurance contributions for tax years from 6 April 2010.

When might you overpay or wrongly pay?

You might have overpaid or wrongly paid National Insurance contributions if:

  • you stopped being self-employed and continued to pay Class 2 National Insurance contributions 
  • you were still working after reaching State Pension age and your employer continued to deduct Class 1 National Insurance contributions from your earnings 
  • your earnings were below the primary threshold 
  • you had more than one job and your combined earnings were more than the 'upper earnings limit' 
  • you were employed and self-employed at the same time and paid Class 1 and Class 4 National Insurance contributions or Class 1, 2 and/or 4 National Insurance contributions but paid more than you needed to 
  • you paid Class 2 National Insurance contributions and your self-employed earnings were below the Small Earnings Exception limit for the year 
  • you wrongly paid voluntary National Insurance contributions (in this case see the later section 'If you think you've wrongly paid voluntary National Insurance contributions')

What to do if you think you've overpaid National Insurance contributions

HMRC's National Insurance Contributions Office usually gets in touch if you've paid £47.50 or more above the annual limit for Class 1 and/or Class 2 National Insurance contributions. However, if you think you've overpaid but haven't been notified write to them after the end of the tax year (5 April).

What to write in your letter

  • why you think you've overpaid 
  • which tax years and which class(es) of National Insurance contributions you think you overpaid 
  • your National Insurance number

Always make sure you sign the letter.

Evidence you need to include

  • a P60 or statement from your employer(s) showing National Insurance contributions deducted from your wages during the tax year (Class 1) 
  • your quarterly bill receipt (Class 2) 
  • your Self Assessment Statement (Class 4)

You need to address your envelope for the attention of the department dealing with your National Insurance contribution class - the section below gives further information.

Where to send your letter asking for a National Insurance contributions refund

Class 1 and/or Class 2 National Insurance contributions paid above the annual limit
'Refunds Group'

Wrongly paid Class 2 National Insurance contributions
'Self Employment Services'

Overpaid Class 4 National Insurance contributions
'Deferment Services'

Send your letter to:
HM Revenue & Customs
National Insurance Contributions Office
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

You can complete form CA8480 to apply for a refund of Class 2 National Insurance contributions which have been paid incorrectly or in excess.

Refund limits and deadlines

There is no deadline for reclaiming excess contributions where, for example, you had two jobs or were both employed and self-employed. If you have wrongly paid for any other reasons, there is normally a six-year time limit for claiming a refund.

If you are claiming a Class 2 National Insurance contributions refund because your self-employed earnings for the tax year were below the Small Earnings Exception limit, you must apply for it in writing between 6 April and 31 January following the end of the relevant tax year, and provide evidence of your earnings for the whole tax year.

Preventing National Insurance contributions overpayments if you have more than one job

If you're an employee and you pay Class 1 contributions with two or more different employers or you are an employee paying Class 1 contributions and also self-employed and paying Class 2 and/or Class 4 contributions, you may be able to 'defer' some of your contributions to prevent an overpayment.

If you think you've wrongly paid voluntary National Insurance contributions

You may be able to claim a refund if you think you wrongly paid voluntary National Insurance contributions where all of the following apply:

  • you're due to reach State Pension age on or after 6 April 2010 
  • you paid voluntary National Insurance contributions between 25 May 2006 and 26 July 2007 
  • at the time you paid them you were unaware of the government's intention to reduce to 30 the number of qualifying years required for a full basic State Pension because you had not received information from HMRC about that intention

Note that strict criteria must be met in order to qualify for a refund in these circumstances.

If you need more help

For enquiries about a refund of Class 1 National Insurance contributions, call the National Insurance Enquiries for Individuals Helpline on 0845 302 1479. Lines are open Monday to Friday from 8.00 am to 5.00 pm.

Enquiries about Small Earnings Exception or Class 2 National Insurance contributions refunds, call the Self Employed Helpline on 0845 915 4655. Lines are open Monday to Friday from 8.00 am to 5.00 pm.

If you're enquiring about a deferment or refund of Class 4 National Insurance contributions, call Deferment Services on 0845 915 7141. Lines are open Monday to Thursday from 8.30 am to 5.00 pm and until 4.30 pm on Fridays.

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