Business Article - National Insurance Tips
National Insurance is an often criticized, yet necessary aspect of the tax system. Each citizen is obligated to pay a National Insurance contribution, often referred to as an NIC. NICs paid over the course of ones working years will be used to build an entitlement for several social security benefits later in life, such as a State Pension. Payments cease once an individual reaches state pension age, which is currently 65 for men and 60 for women.
National Insurance is essentially an income tax. Employees and self-employed individuals are required to pay a certain amount of their weekly income. NICs are usually made once a month, and can often times be confusing.
To avoid mistakes and other difficulties in paying your National Insurance Contributions, there are several tips that should be followed. These simple suggestions and functions will make the process straight forward and relatively easy.
National Insurance Number
If you're yet to have started making NICs, than the first step is to ensure you have a personal NI number. NI numbers are usually assigned to a child by the age of 16 years. However, in other cases, one will not. An NI number will need to be obtained before or as soon as work begins. Employers will need your national insurance number in order to properly report your earnings. An NI will also be needed to open a savings account.In order to obtain an NI number, you will need to call the NI allocation services and schedule an evidence of identification interview. This interview will be a personal one-on-one interview used to confirm your identity. You will need to bring one or more documents to prove you are who you claim to be. These documents can be any number of things, including a passport, ID card, birth certificate, payslips, invoices, etc.
Always keep your NI number secure. Do not give it away to strangers, use it in emails or public mail, or offer it to anyone that does not readily need it (such as an employer). Finally, keep track of your NI card. This card is simply used for you to remember your number; if it is lost, only one replacement will be made during your lifetime. If a card is stolen or lost, report it to the nearest DWP station.
Understand Your Class
National contributions are tiered into classes, and each class has an income/work requirement. Within each class there are income requirements. A percentage of income is paid based on a minimum and maximum amount of weekly income.An employee will need to make payments under a class 1 tier. There's a minimum threshold amount of £100 a week. An employee who makes in excess of £100 and less than £670 are required to pay 11% on the income. For individuals with income exceeding £670, 11% is required as above, plus an additional 1% for the amount over £670.
In contrast to an employee, someone who is self-employed is required to make an NIC as a class 2 and class 4. Class two NICs are fixed at £2.20 per week (£8.80 monthly). In addition to the class 2 NICs, there is also an annual profit class 4 NIC that consists of 8%. Profits made annually between £5,225 and £34,840 are subjected to the 8% annual tax.
It's important to understand exactly where you fall in this area, and what payments are you required to make. Failing to make proper payments could result in paying too much or too little.
Claim Overpayment's
There are occasions where you will end up paying more than is owed by law. When this happens, you can claim back the amount you overpaid. The NIC Office will only notify you if the amount overpaid exceeds £43.50. If you feel that you overpaid the amount required and the NIC office failed to notify you, write a formal letter to the Office after the end of the tax year you feel you overpaid (after April 5th). The only exception to this is for self employed individuals whose earning ended up being less than the SEE limit. If this is the case, a letter must be submitted no later than January 31 of the relevant tax year.Detail in the letter your NI number, the reason you think you overpaid, the tax year and class you overpaid in, an employer statement detailing the deductions they made from your wages (for class 1), a quarterly receipt (for class 2), and your Self Assessment Statement of Account. The letter will need to be written to the attention of your classes department. For payments made above the required amount, write to the attention of 'Refunds Group'. If you are self employed and wrongly paid an NIC, then write to the attention of either 'Self Employment Services' (class 2), or 'Deferment Services' (class 4).
The letter should be addressed to:
HM Revenue & Customs
National Insurance Contributions Office
Benton Park View, Newcastle upon Tyne, NE98 1ZZ.
In most cases, there is no deadline in claiming funds owed; other times, the overpaid amount will not be returned after 6 years. There are, however, limits on the minimum amount that will be paid. For class 1 and class 2 NICs, the minimum amount that is required for a repayment is £4.01; the minimum amount for class 4 is 50 pence.
Don't Pay Unless Required
Not every working individual is required to make NICs. There are threshold limits, and falling below the limit exemplifies the individual. The limit varies yearly, and will need to be verified each year. The average threshold is 100£. If the weekly income does not meet the minimum amount required that year, do not pay NICs. The payments will be unnecessary and a waste of money.
Report Changes
Report any changes that happen in your life that will affect your NI. For example, if you move, the address change will need to filed. This will ensure that you can be contacted if needed. Also, should you get married or become widowed or file for divorce, you will need to report this.
Tax-Free Interest Savings
Money placed into a personal savings account will accumulate savings over time. The interest generated will then be taxed 20% before issued to the account holder. This is a tax on interest, and applies to everyone. However, if you make below the weekly income threshold amount, you may be eligible to file for tax-free savings accounts, allowing you to retain all interest earned.Registering to have tax-free interest applied to your savings account (gross interest) can be done if the tax allowance is higher than the current taxable income. To find out if you are eligible for this, fill out the R85 form help sheet. It will show whether or not you have to pay taxes on interest. If you do not, then file out the accompanying R85 form and send it to your bank. This will tell your bank to stop taking interest out on all your savings accounts. Repeat this step for each bank you have an account at.
Regularly Check Your Tax Code
Tax codes are given to employers by the HMRC, and detail the taxable income and amount of NICs your employer should deduct from your weekly pay. If your tax code is wrong, notify the local Tax Office as soon as possible to prevent incorrect amounts from being subtracted from your pay. You can find your Tax Offices contact information from several sources:- The 'Notice of Coding' that was mailed to you in January or February.
- Ask your employer or pension provider
When contacting them, have both your tax reference and your National Insurance number ready, as they will request both. Your NI number will be listed on your NI card; your tax reference can be found on several items, including payslips and your Notice of Coding. If, for whatever reason, you cannot locate either of these numbers, contact your Tax Office anyway. They should supply you with information on how to obtain those numbers and proceed.
If you are starting a new job and do not currently have a tax number, be sure to file for one through the office. They will assign you a temporary tax reference until a permanent one is issued.
Keep Accurate and Up-to-Date Records
The best way to avoid overpaying or underpaying is to keep accurate records and to take note of all changes throughout the year. Failing to update information, report new income, address changes, and miscellaneous income will cause problems latter in the year.These tips are all intended to save a worker time and money. Taxes are often confusing and many people do not understand them. If, after reading through these tips, you still have questions, be sure to contact the pertinent office and request information. Also, a professional accountant or other finance professional will be able to help you will resolving problems or filing.