NI deducted on back pay for previous months - Have I paid too much NI?

hixie

Hi everyone,

I was wondering if some of you may be able to offer me some advice regarding my own pay. I am AAT qualified and understand a good amount of payroll but I have some questions on National Insurance which I can’t find an answer for on the internet. Hopefully I have chosen the correct group to post this in, please let me know if there is a more suitable group.

I am employed in one job and pay Class 1 NI contributions.

At the end of October this year I was back paid for previous months (July to October 2013) that were owed to me. This was:

July = £879.38
August = £879.38
September = £879.38
October = £879.38
Total pay (before tax and NI) at end of October = £3517.52

My work calculated my NI on the above as £338.23 which was charged as if I earned total amount of £3517.52 in just October rather than for 4 months.

If I was paid the monthly amount in the correct month (i.e. paid £879.38 in July, £879.38 in August etc) then I would only have been charged a total NI of £112.20 for the 4 months (£28.05 for July, £28.05 for August, £28.05 for Sept, £28.05 October). This is £226.03 difference which I could have saved if I had been paid in the correct months. I feel this is a lot – I have nearly paid three times the amount of NI that I should have.

Should my work have processed my pay differently as it was back pay for previous months or is this the only way to do it? If so is there anything I can do to reclaim any of the NI?

As I said before I have looked all over the internet for information on this and really can’t find anything – would it be worth me ringing HMRC for advice or will they just say there is nothing I can do?

I’m not worried about any tax charged as I know this will work itself out.

I would be grateful for any advice anyone can give me as I feel the amount of NI I have paid is too much for me not to question. (I will be talking to my work about this but I wanted to know where I stand before I do so).

Many thanks in advance,

stevef

Sadly NI is calculated on a non cumulative basis in the period payment is received (not earned), so your employer has calculated it correctly

KernowAccountant

Sadly I haven't got time to fully consider this just now, but I believe regulations 7(1)(a) & (2)(a) of the Social Security (Contributions) Regulations 2001 may work in your favour here.

Rozzi Rainbow

I have looked into this on the HMRC website and found the following link to one of their detailed helpbooks:

http://www.hmrc.gov.uk/guidance/cwg2.pdf

If you look at section 64 on page 30 it says if your pay spans more than one earnings period then the NICs are worked out on each period separately. The example shown is for when an employee first starts and may not be paid in the first period, but I would presume this applies in your situation too. Your employer would pay less employer NICs too if they had processed it separately.

angmc

Just to back up what's been said previously, you might be interested in this article I found.

http://www.niconsultancy.co.uk/article12-01.htm

payrollpro

The rules are very specific, NIC is due in the period in which the payment is made and generally the period over which it has been earned is irrelevant. However, where there are additional payments contained within the sum which are correctly due for previous periods then the law demands that the NIC is calculated as if the payment had been made in the correct period. Employers have to decide if the payment is being correctly paid in one lump sum, or is the aggregate of several periods as a result of some error, or other event which prevented payment in the correct period. I am presuming that you were actually paid nothing in July, August and September, is that right? If so then your assumption, backed up by Rozzi, is correct, each period should have been treated separately as though it had been paid in its correct period. One complication is where the additional amount is back pay following a back dated pay rise as HMRC often determine that the arrears are correctly due as a single sum unless the employer can show that they could have paid it earlier.