Thursday, February 19, 2009

Claim back National Insurance for foreign students not residents of UK !!!

Can I claim back National Insurance if I am not a resident of UK and have just done an internship there for two months ?

This was the question facing me as i had done a two month internship with Morgan Stanley in 2008. I looked up the net & HMRC website. As usual they are all very confusing - but i understood the following

For income tax

a. You dont need to pay income tax if your total pay for the period of the internship is going to be less than the limit for personal allowance. This figure is 6035 pounds for 2008-09. You need to fill a P38(s) & submit to your employer so that they wont deduct tax while making your salary payments.

b. If your pay is going to be higher than this you need to pay tax @20 % on amount higher than 6035 upto 34800.

For National Insurance

a. You need to pay NI contribution compulsorily if your weekly income is more than 105 pounds.

b. Thus whether you income tax or not, you are most likely to pay National insurance

Now this was a big issue as a lot of my income was becoming taxable in form of NI & Income tax. Further, I could claim a part of my IT, but with NI I was stuck because of this & I wouldnt even use NI for any purpose cause I wont be living in UK in my life (as of now).

But then I found this page - have a look

Specifically this section -

Coming to the UK - Employees not from the European Economic Area, Switzerland or Social Security Agreement Countries


The basic rule is that anyone coming to the UK to work is required to register for a National Insurance number and pay contributions from the outset. If you are not covered by one of the agreements with European Economic Area countries, Switzerland or Social Security Agreement Countries there are certain exemptions:

Foreign employer sending employee to UK

NICs are not payable for the first 52 weeks starting from the first Sunday after the employee arrives in the UK for an employee:


NICs are not payable for the first 52 weeks starting from the first Sunday after the employee arrives in the UK for an employee who is a student studying full-time outside the UK if:


NICs are not payable for the first 52 weeks starting from the first Sunday after the employee arrives in the UK for an employee who is employed outside the UK in a role similar to an apprentice, if

When the 52 week period finishes, the normal rules about working out, paying and recording NICs apply.


I have marked the relevant portion in red. What this means is that students like me who did there internship during their first & second year of studies can reclaim national insurance paid out. Further, if you are going to do such an internship, tell your company at the starting that they should not deduct NI contributions from your pay.

I am applying for a refund. Lets see.


How do i claim tax refund or repayment when i leave UK (for non residents of UK)?

If you are not a resident of UK & leave UK midway during a year you can claim back what ever extra tax you have been charged.

Why is this so ?

This is because your salary is paid monthly and your tax is cut on it every month by your employer assuming you will be working for a full 12 months.

But that might not always be the case. Thus you will in very high probability over paid taxes which you can claim back.

Let me illustrate with a numerical example. First have a look at the UK Tax structure -

For salary between

0 - 6035           - Nil
6036 - 34800    - 20%
34801 onwards  - 40%

Now lets assume your worked for just 2 months & your monthly salary was 2000 pounds.

Now your employer assumes that you would have worked the full year & thus you would pay tax of (24000-6035)*20% = 3593 pounds. So he will start deducting 1/12th of it every month. So he would have deducted around 598 pounds in 2 months.

But say you leave your job after 2 months & then have no income through the rest of the year. Thus your total income for the period would have been just 4000 pounds, & thus non taxable. So you would be eligible to receive a refund of 598 pounds.

So this is why the need for a refund arises.

Now how do i go about claiming a tax refund.

1. Fill out form P(85). Or a P(85)s in case you are a non resident.
2. Attach parts 2 & 3 of your P(45) certificate of pay & tax (issued by your employer)
3. Send it to the tax office dealing with your tax affairs.
4. Thats it done !! Your tax refund should come to you (or your bank, as you choose, within 4-8 weeks.

~ Cheers

Wednesday, February 11, 2009

HRA - House rent allowance

Continuing from the post below.. continuing with the document which described the position i was applying for I finally came to the compensation part.

A breakup of salary was given which had a component called HRA or House Rent Allowance.

Now at first i didnt understand what this was or what was the rationale for this. On deeper
probing I learnt the following -

Most people's compensation(salary) is not just one single amount. It is composed of various sub-parts. That is, the company employing the person divides the salary into various baskets or categories. This is done majorly to save on taxes. Govt rules on taxation varies from country to country - India's is one of the most complicated. The tax code here has a lot of rules & sub rules, & exemptions and other loop holes to save taxes. Corporate try to create the most tax effective salary structure so that their employees have to pay less income taxes. They could have just given the payout in one lumpsum, but obviously the employees would want to pay less taxes.

HRA is a typical component. HRA - House Rent Allowance - as the name suggests, the amount is given for house rent. The portion of your income under the head of HRA is not fully taxable like normal income. It has special rules for calculation of tax on HRA.

The rule/s in India presently are as follows -

If you pay rent for the house, you live and that house is not owned by you, then you can claim some exemption from Income Tax. You can calculate very easily the portion of exemption.

The least of the following is exempt:
1. An amount equal to 50 percent of salary, where residential house is situated at Mumbai, Delhi, Kolkatta or Chennai and an amount equal to 40 percent of salary, where residential house is situated at any other place.

2. House Rent Allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employer during the year or

3. The excess of rent paid over 10 percent of the salary.

Salary includes basic, dearness allowance and commission based on a fixed percentage of turnover achieved by employee as per terms of contract of employment.

Remember if you do not pay any rent or live in your own house, no exemption is available.

What is KRA ?

What is KRA ??

This is what i asked when i read a job description (what is this ?? :P) for a position i was applying

Well, very briefly KRA = Key Result Area

This refers to the areas/activities/targets on which one's performance is evaluated
for purpose of compensation/bonus/promotion/just evaluation.

Have a look at this wiki entry -