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It's NIC work for the taxman if you overpay

Overdo your national insurance and you might not get the money back. Melanie Bien reports

Sunday 23 February 2003 01:00 GMT
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Even before the increase in national insurance contributions (NICs) takes effect from April, most of us probably feel we pay more than enough to the Government. But we could be paying more national insurance than we actually need to – and we're unlikely to be aware of this unless we find out for ourselves.

Apparently, it is up to us to ensure we are paying enough NICs. These contributions are payable by anyone who earns more than a certain amount, otherwise known as the lower earnings limit. The aim is to build up a contribution record which entitles that person to claim certain benefits, such as maternity pay or the state pension, depending on how much they have paid over the years.

Yet it is possible to overpay and, what's worse, not be able to claim the money back. Independent on Sunday reader Charles Moberly finds himself in this position, having paid more Class 3 NICs than he needed to. In fact, Mr Moberly made unnecessary payments to the Inland Revenue for no less than 51 months. These have amounted to £850 – a sum the Revenue says he can't have returned to him unless he can prove that he was wrongly advised.

The problem started when Mr Moberly took early retirement in 1996. He worried that he might not have made enough Class 1 contributions (see box on the right) to qualify for a state pension, so he contacted the benefits office, which advised him to make Class 3 NICs – voluntary payments – to ensure he built up his contribution record to the required level. In 1997 he set up a monthly direct debit on the back of this advice and thought no more about it.

"I wouldn't have known any better if it wasn't for a conversation I had a year or so ago with a friend who asked me if I knew it was possible to overpay your contributions," he says. "I contacted the contributions agency in Newcastle, which told me I had overpaid. I later received a statement from the agency which said I'd overpaid by £850 but that they would only issue a refund if the premiums had been 'paid in error'. I was wrongly advised by a government body. The onus is on me to prove it."

Since it was a phone conversation that prompted the action, Mr Moberly has no proof. But surely the Revenue can see, he argues, that the premiums were 'paid in error'. After all, no one would know- ingly pay more than they should.

But if people don't know it is possible to overpay, they may be doing so unwittingly.

"You would have thought that as I paid by direct debit, the payments would be cancelled once I'd paid enough," he adds. "If you are buying insurance, for example, you would expect the firm to cancel the direct debit once they've taken enough in payments – not that you'd have to do it.

"The danger of the Revenue putting the onus on the individual is that they expect you to know all the rules but don't give you any details about how much you have built up in contributions or how much more is needed. So nobody knows where they stand."

The Revenue, however, stands by its decision not to issue a refund. "If there is an error in payment in NICs, no refund is due," says a spokes- man. "As these are voluntary contributions, no compulsion was involved."

Such an attitude underlines the importance of ensuring that we don't make overpayments. Most people don't have to worry about this as their contributions are worked out by their employer, but mistakes do happen so it is good practice to keep an eye on how much is deducted from your salary. If the sum fluctuates dramatically from month to month, it could be down to an error and you should take this up with your employer or human resources department – rather than hope they will spot any inaccuracies and correct them.

If you are self-employed or think you might need to make extra contributions, you must take advice from a tax expert such as a Citizens Advice Bureau. Look in the Yellow Pages for your nearest branch. You really are responsible for making sure your payments are high enough to enable you to qualify for benefits and a state pension, but there's no point in paying more than you need to.

"I think few people are aware that it is down to them to monitor their own position," says John Whiting of accountants Pricewaterhouse- Coopers. "Most people have been brought up to keep on paying and never question anything until they reach 65," he adds. "All the Revenue tries to do is monitor double payments, but it won't guarantee to do this and won't do much more.

"So unless Mr Moberly can prove he was wrongly advised, because they are 'voluntary' payments he won't be able to get a refund."

National insurance contribution classes

There are four types of contribution, known as "classes".

* Class 1 is paid by most people in full-time employment. You might not even realise you are paying it as it's deducted from your gross wages by your employer.

* The self-employed pay Class 2 once their income reaches a certain level. These payments are fixed and paid weekly.

* The self-employed can also pay Class 4, a percentage of their profits or gains, at the end of the tax year.

* Class 3 NICs are for those who are unemployed and want to top up their contributions voluntarily because they haven't saved enough over the years to qualify for a state pension or bereavement benefits. The most you can save is £6.85 a week, so it is difficult to overpay – unless, of course, you shouldn't have been making any payments in the first place.

* Your NI number is used to identify your contributions and benefit record.

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