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Incorrect Class4 calculated by HMRC?

Am i missing something or is there a glitch with HMRC system when calculating Class4 on S/Employment

Didn't find your answer?

Just received SA302 from HMRC correcting (increasing) the overall liability.

Scenario is:

High earner with the Employment income of £109,804 (taxed at source) and Self Employment income of £39,929.

As per P60, Earnings above the Primary Threshold up to and including the Upper Earnings Limit (UEL) amounted to £41,376 (which is correct ) so the maximum amount of Class 1 NIC was paid. In my opinion and general knowledge of National Insurance due, the Self Employment profit should be then taxed at 2% rather than 9%.

Therefore Class 4 NIC due should be as follows: (£39,929 - £8,632) x 2% = £625.94   This is also how Taxfiler has calculated the liability (and Class4 on SA110 page on tax return was entered as £625.94).

SA302 received from HMRC calculates Class 4 NIC due as (£39,929 - £8,632) x 9% = £2,816.73

I just spoke with HMRC and the agent has referred the calculation to another different department for checking and amending if applicable.

Am i correct with my calculation or is there any special case here, where the Class4 @2% do not apply? 

Your thoughts are appreciated. Thank you in advance!

Replies (18)

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By Rammstein1
10th Jul 2020 09:37

Your figures look correct but was the client in employment for the full tax year?

Thanks (1)
Replying to Rammstein1:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:10

Apologies for late reply. Yes, he was.

Thanks (0)
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By Paul Crowley
10th Jul 2020 15:15

HMRC SA return system does not use the return figures for NI. Uses what is existing known data to HMRC

Edit
Brain in neutral class 4 yes class 2 No

Thanks (1)
Replying to Paul Crowley:
By SteveHa
10th Jul 2020 12:03

Paul Crowley wrote:

HMRC SA return system does not use the return figures for NI. Uses what is existing known data to HMRC

So then HMRC's systems are wrong.

Thanks (1)
Replying to SteveHa:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:14

It looks like it. I quite often get nervous when clients personal income is over £100K. I'm pleased that I haven't missed any changes to the rules. Late budget combined with pandemonium pushed back some of the usual cpd.

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By Paul D Utherone
10th Jul 2020 11:30

Your figure is what I get from my calculator assuming full years and max 53 weeks Class 2

Does the "Information to assist with the tax return" for the client confirm the Class 1 PT to UAP?

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Replying to Paul D Utherone:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:17

Yes. Full 53 weeks of class2 which incidentally have been removed from the HMRC. This is quite normal when HMRC does not includes class2 and then ask about these around December...

But that's trivial amount anyway comparing the overall liabilities

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By frankfx
10th Jul 2020 13:51

https://www.gov.uk/claim-national-insurance-refund/y

let us know how you get along with this.

Thanks (1)
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By piggybank
10th Jul 2020 14:26

Hi,
I have experienced that hmrc has done the Class 4 calculation without adjusting in terms of the class 1 Nic paid. It was quickly sorted when we contacted hmrc.
You can also double check your calculation by following the step by step calculation for class 4 Nic maximum in NIM24175. Taxfiler should do this for you if you fill in the details in the class 2 and class 4 nics data input area.

Thanks (1)
Replying to piggybank:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:21

It wasn't an issue last year (5/4/19) as HMRC automatically accepted the calculations. Income levels were similar.
The only difference between this and last year is the timing. For 5/4/19 the client came to see us in late November so his tax was quite close to January deadline. This year we've done it as soon as the coronavirus restrictions eased off.

Maybe, similarly like with class2 , HMRC not picking up the Class1 paid until quite late in the tax year.

Thanks (0)
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By piggybank
10th Jul 2020 14:28

Hi,
I have experienced that hmrc has done the Class 4 calculation without adjusting in terms of the class 1 Nic paid. It was quickly sorted when we contacted hmrc.
You can also double check your calculation by following the step by step calculation for class 4 Nic maximum in NIM24175. Taxfiler should do this for you if you fill in the details in the class 2 and class 4 nics data input area.

Thanks (0)
Replying to piggybank:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:26

Thank you for nim24175. I'll bookmark it. Tried to find the examples which I looked at few weeks ago on HMRC manual pages but like usually, if you need to find something quickly on the internet, you can never find it.

Thanks (1)
By SteveHa
10th Jul 2020 15:35

You could always contact HMRC and object to their "correction" under TMA 1970 S9ZB(4)

Thanks (0)
Replying to SteveHa:
panda ketteringUK
By ketteringUK
10th Jul 2020 15:47

Hopefully my phone call will resolve the issue without a need for formal rejection. It's always hit and miss when calling the sa agent phone line. This time, I felt postiive and willing vibes from the HMRC representative.

Thanks (0)
By Paul D Utherone
10th Jul 2020 16:50

Has the Class 1 info made it onto the client SA record yet, to show up in the "Information to help complete your tax return " section?

It's a little early in the year for them to have finished their reconciliations (though I have started to see some details pull through on clients).

If the employment & NIC details haven't got onto the client record then it's to be expected that HMRC systems will automatically amend the return to make this 'correction', and in due course amend again when the figures do get there.

Isn't it grand to have a gov department with possibly the most disjointed set of records in the world!!

Thanks (1)
panda ketteringUK
By ketteringUK
15th Jul 2020 13:30

Quick update - Unfortunately on this occasion HMRC reply was completely missing the point. Rather than adjust Class4NIC they have removed Class2NIC due to the client not being registered as S/E for Class2 NI purposes.

aaargh!!!

Back on the phone now

Thanks (0)
Replying to ketteringUK:
By SteveHa
15th Jul 2020 13:39

Now it's time for the 9ZB(4) angle and just tell them to put it back to how it was submitted. If they don't like it, they can open an enquiry.

There's nothing requiring the objection to be in writing. You can do it over the phone.

Thanks (0)
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By frankfx
15th Jul 2020 19:59

https://www.taxadvisermagazine.com/article/class-1-class-2-and-4-nics-li...

Not sure where you are on this tangled mess.

One thing.

Charge client for sorting

Then get client to reclaim your charges. Of course you will have to do the spade work in the back ground, included in the fee!

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