Overpaid National Insurance Working Only Part of the Tax Year?

karl10247

Hi All,

A friend of mine started his new job in Sept 2023 after several years of unemployment.
In 7 months between Sept 2023 and April 5th 2024 he earned less than the personal allowance, paid monthly.
On his P60 he can see the employer deducted around £500 national insurance contributions for the 2023-2024 tax year but he wasn't sure if he'd overpaid because he only worked 7 months of 12 so I said I'd have a look.

Given that his pay didn't go over £12570 I first thought that he shouldn't have paid any NI but since he earned over £1048/mth (for 7 months) NI was deducted.

So my question is, if his MONTHLY pay (for 7 months) exceeded the primary threshold but his ANNUAL pay was under £12570 should he have paid any national insurance?

Thanks in advance

Argonauts

Did same in 23/24
got a big months pay in April 
told cannot have NI contributions back

it’s not like tax that’s over 12 months

NI is monthly earn a large amount you pay that amount for that figure 

unforunately that’s it 

molerat

NI is deducted per pay packet, there is not an annual threshold like tax has,  NI can only be reclaimed in limited circumstances, there is nothing to reclaim in this instance as it was correctly deducted.

hugheskevi

That all looks correct.

National Insurance is calculated and paid on a pay-period basis, eg monthly if that is how salary is paid. Previous and subsequent periods are irrelevant. 

Income Tax is paid on a financial-year basis, so previous and subsequent earnings within the tax year count toward calculating the total amount due.

As there are 3 bands of employee National Insurance (0%, 8%, and 2%) this can be manipulated to personal advantage, eg, by 'lumpy' salary sacrifice, whereby in some months you put very little into a pension and so pay 2% on a lot of income, but in other months you put very high contributions and so avoid paying 8% on a lot of income. Or choosing to leave employment a few days into a pay period so as to benefit fully from the 0% band.

karl10247

Thanks for the responses guys, your messages make it very clear on how NI is applied now.
Its completely unfair mind!
But as usual we've no choice on the matter - save for the excellent advice from @hugheskevi about salary sacrificing which i may have to look into in more detail.

I expect Martin isn't a big fan of how NI is applied either 

Have a good day all

Marcon

hugheskevi said:

That all looks correct.

National Insurance is calculated and paid on a pay-period basis, eg monthly if that is how salary is paid. Previous and subsequent periods are irrelevant. 

Income Tax is paid on a financial-year basis, so previous and subsequent earnings within the tax year count toward calculating the total amount due.

As there are 3 bands of employee National Insurance (0%, 8%, and 2%) this can be manipulated to personal advantage, eg, by 'lumpy' salary sacrifice, whereby in some months you put very little into a pension and so pay 2% on a lot of income, but in other months you put very high contributions and so avoid paying 8% on a lot of income. Or choosing to leave employment a few days into a pay period so as to benefit fully from the 0% band.

Just to add to the above very helpful answer - that's not how it works for company directors:

Directors are classed as employees and pay National Insurance on annual income from salary and bonuses over £12,570. Contributions are worked out from their annual earnings rather than from what they earn in each pay period.

https://www.gov.uk/employee-directors

LHW99

karl10247 said:

Thanks for the responses guys, your messages make it very clear on how NI is applied now.
Its completely unfair mind!
But as usual we've no choice on the matter - save for the excellent advice from @hugheskevi about salary sacrificing which i may have to look into in more detail.

I expect Martin isn't a big fan of how NI is applied either 

Have a good day all

Hopefully though that will be enough to at least pay for a part year of state pension, so reducing the amount needed to make it a full year subsequently?

Dazed_and_C0nfused

LHW99 said:

karl10247 said:

Thanks for the responses guys, your messages make it very clear on how NI is applied now.
Its completely unfair mind!
But as usual we've no choice on the matter - save for the excellent advice from @hugheskevi about salary sacrificing which i may have to look into in more detail.

I expect Martin isn't a big fan of how NI is applied either 

Have a good day all

Hopefully though that will be enough to at least pay for a part year of state pension, so reducing the amount needed to make it a full year subsequently?

With payments in 7 tax/NI months it could easily qualify as a full year 😉

Grumpy_chap

karl10247 said:

Thanks for the responses guys, your messages make it very clear on how NI is applied now.
Its completely unfair mind!

I am not sure that the way NI contributions work is unfair - it is applied to all employed persons in the same way.

There is some logic in NI being calculated based on weekly or monthly ("pay period") income given that, in theory, NI covers welfare state and healthcare.
Welfare payments are made on the basis of need in a given week.  It has to be like that as, if someone has no money for food, it would be preposterous if the system assessed an individual was in need of welfare but that payment was not made that week as the system waited to see how much income the individual had received over the tax year.
It is, therefore, logical that contributions to the system are assessed on the same weekly basis.

Sarahspangles

Grumpy_chap said:

karl10247 said:

Thanks for the responses guys, your messages make it very clear on how NI is applied now.
Its completely unfair mind!

I am not sure that the way NI contributions work is unfair - it is applied to all employed persons in the same way.

There is some logic in NI being calculated based on weekly or monthly ("pay period") income given that, in theory, NI covers welfare state and healthcare.
Welfare payments are made on the basis of need in a given week.  It has to be like that as, if someone has no money for food, it would be preposterous if the system assessed an individual was in need of welfare but that payment was not made that week as the system waited to see how much income the individual had received over the tax year.
It is, therefore, logical that contributions to the system are assessed on the same weekly basis.

I’ve mostly had fixed term contracts for the last fifteen years. I’ve always known that if I didn’t immediately have a new contract I could claim contributions-based Jobseeker’s Allowance for a few weeks. I used to keep a tally of weeks worked to ensure I would have the cover if I wanted to claim. This arrangement wouldn’t work if NI wasn’t a weekly/monthly payment.