For the tax year 2015/16 and beyond, National Insurance (NI) for the self-employed is all incorporated into the tax return and the tax calculation. Time will tell, but, in theory, this should ensure that the correct overall amount of NI is paid.
Prior to that there was a two-step process, whereby class 2 self-employed NI was collected independently and class 4 NI was paid through the tax return, but, crucially, with no account being taken of any class 1 employee NI deducted from a salary that may potentially limit the class 4 due. This could lead to overpaid self-employed NI.
This was certainly the case for a client of AISMA accountants Moore and Smalley LLP. On taking over the financial affairs of a hospital consultant employed by the NHS who also worked privately, Moore and Smalley uncovered a catalogue of errors over the previous years and found that the doctor had overpaid NI contributions that, with interest, amounted to more than £5,000.
Moore and Smalley began by reviewing the doctor’s last tax return, before the integrated 2015/16 system, which had been submitted by the previous accountant. This revealed that the full rate of NI was being paid on both the doctor’s employed and self-employed earnings. David Walker, Healthcare Services Senior Tax Manager at Moore and Smalley, explains: “If a doctor pays the full rate of NI for employed income, then the rate paid on any self-employed income, in this case the doctor’s private fee income, should be reduced. Consequently, this doctor was paying more than was needed.”
After obtaining the necessary information, Moore and Smalley calculated the refunds due for several years and made an application to HM Revenue & Customs on the doctor’s behalf. A refund of £5,082.77, including interest, was paid. Although there were errors for this doctor for only a few years, there is no time limit for the application for a refund in these circumstances. Some refunds could therefore be considerably higher.
David Walker continues: “We come across similar cases frequently since it can affect doctors working as hospital consultants and also salaried GPs who earn non-NHS income. With this particular case we not only obtained a refund for NI contributions but also found that we could reduce the doctor’s tax payments on account due for the subsequent year.”