National Insurance Contributions – Return of NICs paid in excess of the annual maximum

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The Social Security legislation requires employed earners with two or more employments to pay NICs on earnings from each employment.  If that results in an employed earner paying more than the annual maximum of NICs liability, as set out in Regulation 21 of the Social Security (Contributions) Regulations 2001, the earner may claim a refund of the excess contributions.

However, if such an earner is in contracted-out employment in at least one of the employments, either as a member of an occupational pension scheme (COMP or COSR) or an Appropriate Personal Pension (APP) scheme, the amount that may be refunded is still calculated by means of a formula that considers the NICs due at 9.4% on earnings between the primary earnings threshold (PT) and the upper earnings limit (UEL).  The formula has not yet been adjusted to take the introduction of the upper accrual point (UAP) (from April 2009) into consideration.

This situation is corrected by means of the Social Security (Contributions) (Amendment No. 3) Regulations 2010.  Although the changes come into force from 6 April 2010, they apply to earnings from the 2009/10 tax year onwards.

Whether or not NICs have been overpaid in a tax year involves calculating the maximum possible primary NICs that could be paid by the particular employee is a 53-week tax year.  The calculation, as set out in Regulations 21, for any particular tax year is as follows:

Step 1:    53  ×  (the difference between the weekly UEL and PT rates for the tax year)

Step 2:   multiply the amount at Step 1 by 11%

Step 3:    add together the earnings in each of the employments between the PT and the UEL

Step 4:    deduct the amount at Step 1 from the total at Step 3

Step 5:   if the value of Step 4 is positive, multiply it by 1%.  If it is negative, the value is treated as nil

Step 6:   add together the earnings in each of the employments that exceed the UEL

Step 7:   multiply the total at Step 6 by 1%

Step 8:   add together the results at Steps 2, 5 and 7.  The result is the employee’s annual maximum contributions.

If the employee’s total NICs in all of the employments exceeds this annual maximum and the employee makes a claim for a refund of the excess, HMRC must return the excess, calculated according to the calculation methods in Regulation 52A, as follows.

There are separate calculation rules covering three situations.

1. Where none of the employments is contracted-out, the refund is the amount by which the NICs actually paid exceeds the annual maximum using the Regulation 21 calculation.
2. In respect of two or more employments that include one or more COMP or COSR employments,

   • in the case of one COMP or COSR employment, the refund is the amount by which the NICs actually paid exceeds
     • 53  ×  ((the difference between the weekly UAP and PT rates for the tax year)  ×  9.4%)  plus
     • 53  ×  ((the difference between the weekly UEL and UAP rates for the tax year)  × 11%).
   • in the case of two or more COMP and/or COSR employments, the calculation is as follows:Step 1:         add together the earnings in each of the contracted-out employments between the PT and the UAP

     Step 2:        multiply the total at Step 1 by 9.4%

     Step 3:        calculate 53  ×  (the difference between the weekly UEL and PT rates for the tax year)

     Step 4:         deduct the total at Step 1 from the amount at Step 3 and multiply the result by 11%

     Step 5:        add together the results at Steps 2 and 4.

     The refund is the amount by which the NICs actually paid exceeds the result of Step 5.

3. In respect of two or more employments that include one or more APP employments,

   • in the case of one APP employment, the refund is the amount by which the NICs actually paid exceeds
     • 53  ×  ((the difference between the weekly UAP and PT rates for the tax year)  ×  11%).
   • in the case of two or more APP employments, the calculation is as follows:Step 1:    add together the earnings in each of the contracted-out employments between the PT and the UEL

     Step 2:   multiply the total at Step 1 by 11%

     Step 3:   calculate 53  ×  (the difference between the weekly UAP and PT rates for the tax year)

     Step 4:   deduct the total at Step 1 from the amount at Step 3.  If the result is positive, go to Step 5, otherwise go to Step 6

     Step 5:   multiply the amount at Step 3 by 9.4%

     Step 6:    53  × (the difference between the weekly UEL and PT rates for the tax year)

     Step 7:    add together the total at Step 1 and any positive amount at Step 4 and deduct the result from

     Step 6

     Step 8:    multiply the amount at Step 7 by 11%

     Step 9:    add together the results at Steps 2, 5 (if completed) and 8.

     The refund is the amount by which the NICs actually paid exceeds the result of Step 9.

Further information:

The Social Security (Contributions) (Amendment No. 3) Regulations 2010

Explanatory Memorandum to the The Social Security (Contributions) (Amendment No. 3) Regulations 2010

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This entry was posted on Friday, March 19th, 2010 at 11:32 and is filed under National Insurance Contributions, NIC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.