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A considerable financial benefit exists for those who operate as self-employed rather than employees, notwithstanding the increase in National Insurance Contributions (NIC) announced in the April 2022 Spring Statement (replaced by the Health and Social Care Levy in July 2022). Where a person works for themselves and for another company, however, issues might arise since the individual may end up paying too much NIC for no additional gain.
Individuals who are both employed and self-employed may easily find themselves in this predicament if they are not aware of the laws due to the differing rates for the 2022/23 year.
Following adjustments to the employees’ primary threshold (PT), the lower earnings limit for Class 4 contributions was raised to £11,908 for 2022/23, keeping consistency with the annual PT. Even so, the self-employed pay less in Class 4 NICs (10.25 per cent vs 13.25 per cent) because there is no counterpart to employer NICs for the self-employed (15.05 per cent). There will be no change in 2022/23 for the Class 2 Small Profits Threshold of £6,725.
Calculation issues may arise if there is a mix of earnings such that the Class 1 limit is not exceeded individually, but by paying NIC based on overall earnings (whether that be for an extra second job or self-employment), the maximum amount is exceeded, and a refund payable. Annually, the maximum amount is equivalent to 53 primary Class 1 contributions at the maximum earnings limit (£967 per week x 53 weeks = £50,270 per tax year).
A deferment application to HMRC was made in the past to guarantee that such overpayments were not made. When HMRC receives the self-assessment tax return, they say they will automatically do this calculation. However, this requires that the individual’s NIC record is full and valid. Deferment will be received by 14 February for a 2022/23 year claim, with any application beyond that date being considered but only with consent from the individual employers.
Deferment: Class 2 and Class 4 NICs cannot be postponed; only Class 1 NICs may be postponed if any of the following conditions are met:
- Class 1 NIC with more than one employer
- earn £967 or more per week from one job throughout the tax year;
- weekly earnings of at least £1,157 from at least two employment (combined income).
The following is the calculation’s formula:
PT x (X-1) is the upper limit of your income. where X is the number of positions
In effect, a reduced rate of 3.25 per cent on weekly earnings between £190 and £967 in one job (not both) instead of the regular rate of 13.25 per cent for the tax year 2022/23.
Practical Point: Class 1 contributions or Class 1 and Class 2 contributions will have an individual maximum responsibility depending on the earnings earned for each person employed in more than one job or employed and self-employed. There are examples in the National Insurance Manual provided by HMRC for determining the yearly maximum Class 1 and Class 2 for different earnings with different job patterns.
