HMRC refusing NI refund despite total earnings below threshold

dkwywbicgia

In 2020/21 my total income was a one-off lump-sum payment from a former employer of £5,000. Class 1 NI payment of £180 was deducted automatically from this payment even though my total income for the year was well below the bottom threshold required to pay any NI.

I wrote to HMRC to request a refund but they told me because the amount was paid as a lump sum the employer was correct to deduct £180 of National Insurance and no refund is owed. How can this be correct?

Dazed_and_C0nfused

Because NI is calculated per pay day, totally different system to income tax.

Merlin139

Sadly that is the rules. You earn it and if its over the threshold then you pay at the appropriate rate. I have earned less than the National Insurance threshold this year and paid just short of £200 National Insurance and it goes towards contributions for my State Pension.

Was not the first time this has happened and it wont be the last. 

penners324

Another reason why the national insurance system needs merging with paye

molerat

penners324 said:

Another reason why the national insurance system needs merging with paye

Not going to happen.  Increasing a pensioner's tax by 63% is not a vote winner.

Silvertabby

molerat said:

penners324 said:

Another reason why the national insurance system needs merging with paye

Not going to happen.  Increasing a pensioner's tax by 63% is not a vote winner.

Wasn't this discussed some time ago, but dismissed as 'too difficult'?

I think that part of the proposal was that pension income would continue to be taxed at 20%.

molerat

Silvertabby said:

molerat said:

penners324 said:

Another reason why the national insurance system needs merging with paye

Not going to happen.  Increasing a pensioner's tax by 63% is not a vote winner.

Wasn't this discussed some time ago, but dismissed as 'too difficult'?

I think that part of the proposal was that pension income would continue to be taxed at 20%.

But it is getting sort of aligned with income tax in July.

[Deleted User]

In 2002/03 employees paid NIC at a rate of 10% between £89 and £585 - that was it! The following year an upper rate of 1% was introduced. This increased to 2%. The 10% became 11% and then 12%.  Later the upper limit was increased to the higher rate threshold and, therefore, more was charged at the higher rate. Now everyone will pay an extra 1.25% ‘levy’ (although NIC starts at a higher level of earnings). 

Does anyone really think it will remain at 1.25%?

p00hsticks

penners324 said:

Another reason why the national insurance system needs merging with paye

It's not that it needs merging with income tax, but IMHO it does need to operate on a similar sort of mechanism, so that people in the 'gig economy' with multiple part time jobs pay the same NI and earn the same credits that they would if they were earning the same total in a single job, and people like the OP who are on variable pay pay the same amonut regardless of how frequently they get paid.

Silvertabby

molerat said:

Silvertabby said:

molerat said:

penners324 said:

Another reason why the national insurance system needs merging with paye

Not going to happen.  Increasing a pensioner's tax by 63% is not a vote winner.

Wasn't this discussed some time ago, but dismissed as 'too difficult'?

I think that part of the proposal was that pension income would continue to be taxed at 20%.

But it is getting sort of aligned with income tax in July.

Pensioners will only pay NI on earned income (not pension income) over a certain level.  Or have I missed something?

[Deleted User]

Silvertabby said:

molerat said:

Silvertabby said:

molerat said:

penners324 said:

Another reason why the national insurance system needs merging with paye

Not going to happen.  Increasing a pensioner's tax by 63% is not a vote winner.

Wasn't this discussed some time ago, but dismissed as 'too difficult'?

I think that part of the proposal was that pension income would continue to be taxed at 20%.

But it is getting sort of aligned with income tax in July.

Pensioners will only pay NI on earned income (not pension income) over a certain level.  Or have I missed something?

You have not but not just pensioners - property owners pay no NI on their rental income also.