National Insurance Back Calculation

If you discover that an employee has been reported to HMRC with an incorrect National Insurance Category in previous pay runs then this can be rectified in your current pay run by using the 'Back Calculate NI' option in the 'Actions' button for the individual in the pay run.

If we use an employee who has been reported under Category A but who should have been reported under Category C for part of the tax year as an example.

Once you click on the 'Back Calculate NI' option you firstly need to choose the 'Category used for re-calculation' then apply the relevant from and to dates (which must come under the same tax year) and then click on the 'Calculate' button.

This will then display a breakdown per pay run of what the original NI contributions were and the New NI contributions and depending on which categories are being changed how it will affect either the Employers or Employees contributions.

As we are using A to C on this example you will see the Employee has already paid a total of £258.80 in Original NI contributions whereas in the New NI contributions the total would be £0.00 so the Employee would be due a rebate of £258.80.

Once you are happy with the figures click on the 'Apply' button which will also automatically change the NI category against the employee.

You will then see that a HMRC Adjustment will appear in the pay run stating that this will be a NI overpayment so it will be displayed as a negative number and you will also notice the same figure will appear under the Employee NI contribution.

If you would like a report in a PDF format of the calculations around the HMRC adjustment you can click on the icon highlighted by the arrow in the screenshot below.

Once you have finalised the current pay run and submitted the RTI/FPS to HMRC you will be able to see that the NI figures for both periods of when each of the National Insurance categories were relevant for the employee will be displayed.

N.B If you apply a National Insurance Back Calculation that results in the employee being responsible for an underpayment of National Insurance then there is Government legislation in place with regards to the amount that can be repaid per pay run, which is currently capped at no more than the equivalent amount of the employee's national insurance contribution for that pay run.

If this is the case then the employee would see the following in their pay slip(s) until the full amount has been reclaimed.

Please note that you are only able to use this feature for the current year only. If you would like to make an adjustment for a previous tax year, then you would need to do so by processing an HMRC adjustment via the pay run.

If the back calculation affects the employer either as an overpayment or underpayment the figures would be reflected in the P32 and therefore in the amount of National Insurance that would need to be paid (or not depending on the figure) to HMRC for that month.

If you have any questions or feedback please let us know via support@yourpayroll.co.uk