12. TC - NI and further admin matters Flashcards
Who pays Class 1 Primary NICs?
E’ees aged between 16 - state retirement age
What are Class 1 NICs paid on?
Cash earnings including
- Gross pay (e.g. salary, bonus, commission etc) before any allowable deductions
- Payments in excess of SMRS. For NICs the mileage allowance of 44ppm only and payments below that limit are not allowable deductions
When can an individual end up paying too much NIC?
If they have 2 employments - both self employed and employed
An overpayment will then be repaid by HMRC
What is the earnings period for calculating Class 1 NICs?
Normally calculated by reference to an e’ees earnings period
i.e.
if paid weekly, calc contributions on a weekly basis
if paid monthly, calculate contributions on a monthly basis
When are annual limits for NIC used for the earnings period?
Annual limits should be used if
- Earnings accrued evenly over the year
- The individual is a director
- Exam Q requires you to compare annual positions in tax planning scenario (e.g. e’ee vs self employed)
How are NICs for directors dealt with?
Regardless of when the director is paid, their earnings period is the tax year
Annuals earnings period applies to the whole TY, even if the indiv ceases to be a director during the year
How is the annual earnings period adjusted for directors who cease to be a director during the year?
It doesn’t
Still apply the annual earnings period to the whole tax year
What are the rates for Class 1 Primary NICs?
0% 0 - primary threshold
12% between primary - upper
2% above upper earnings limit
What are the primary and upper earnings limit thresholds ?
Weekly
Monthly
Annual
PT:
Weekly £166
Monthly £719
Annual £8,632
UEL
Weekly £962
Monthly £4,167
Annual £50,000
TYU1: Joey is paid £3,500 monthly
In Aug 2019, she is also paid a bonus of £1,000
Calc the class 1 primary liability for he TY 19/20 assuming
a. she is an e’ee
b. she is a director
a. E’ee Joey will pay Class 1 NICs as follows
11 months: cash earnings = £2.5k
(£3.5k - £719) x 12% = £334 x 11 = £3,671
August: cash earnings = £3.5k + £1k = £4.5k
(£4,167 - £719) x 12% = £414
(£4,500 - £4,167) x 2% = £7
Total of all = £4,092
Director:
Annual basis used
Annual earnings = £3.5k x 12 + £1k = £43k
Annual: (£43k - £8,632) x 12% = £4,124
What are Class 1 secondary NICs due on?
Same as Class 1 primary NIC
Cash earnings including
- Gross pay (e.g. salary, bonus, commission etc) before any allowable deductions
- Payments in excess of SMRS. For NICs the mileage allowance of 44ppm only and payments below that limit are not allowable deductions
What are the rates of class 1 secondary NICs for e’era of e’es over 21 and apprentices over 25
0% below secondary threshold
13.8% above secondary threshold
What are the thresholds for Class 1 secondary contributions for normal workers
Secondary threshold (0% below, 13.8% above)
Weekly - £166
Monthly £719
Annual £8,632
What is the thresholds for Class 1 secondary contributions for e’ers for e’ees under the age of 21
Upper secondary threshold
Weekly - £962
Monthly £4,167
Annual £50,000
What is the thresholds for Class 1 secondary contributions for e’ers for e’ees who are apprentices and under the age of 25
Upper secondary threshold
Weekly - £962
Monthly £4,167
Annual £50,000
TYU2: Camilla is paid £4,785 monthly by her e’er Data Ltd
Calc the class 1 secondary NICs payable by Data Ltd in relation to Camilla if
a. Camilla is 30
b. Camilla is 20
Ignore the e’ment allowance
Annual salary - £4,785 x 12 = £57,420
a. Aged 30
(£57,420 - £8,632) x 13.8% = £6,733
b. Aged 20
(£57,420 - £50,000) x 13.8% = £1,024
How does the employment allowance work?
Reduces total class 1 secondary NICs of most e’ers by £3k per year
Allowance per e’er (NOT e’ee)
Not available to companies with a single director and no other e’ees
When is the employment allowance not available?
Not available to companies with a single director and no other e’ees
When is the employment allowance not available?
Not available to companies with a single director and no other e’ees
What are the percentages due on Class 1A NICs?
13.8% flat rate for class 1a
Give an example of some earnings and benefits that are subject to Class 1 primary and secondary ?
- Bonus, salary, vouchers and payments readily convertible into cash e.g. gold bars
- Write off of a beneficial loan
- Childcare vouchers in excess of £55/weem for BRTP, £28 for HRTP and £25 for ARTP
- SMRS payments over 45ppm [no deduction if less than 45p received]
- Profit element of a round sum allowance
Give some examples of earnings and benefits that are subject to Class 1a
- Car van and fuel benefits
- Beneficial loan interest
- Directly contracted childcare in excess of £55/week for BRTP, £28 for HRTP and £25 for ARTP
- Pvte medical insurance and taxable benefits under the salary sacrifice scheme
How do you generally distinguish whether earnings and benefits will be subject to Class 1A or Class 1 primary and secondary?
Class 1 primary and secondary = cash earnings
Class 2 = non cash earnings
What is a PAYE settlement agreement (PSA) ?
Can be used by an e’er to settle any PAYE and NICs due to HMRC o certain expenses or benefits in relation to an e’ee
What is the impact of a Class 1B contribution for e’ee and e’er?
- no entries are required on e'ees P11D form (and therefore e'ee not taxed on benefits or pay class 1 primary NICs in relation to cash benefits) No class 1a payable by ever
What does the e’er pay for Class 1 B contributions?
- Income tax that would’ve been due by e’ee on an equivalent of exp/benefit, grossed up by the marginal rate of tax paid by that e’ee
- Class 1B NICs on the grossed up value of these expenses/benefits
What is the rate payable for Class 1B NICs and what is it payable on?
Payable by e’ers on grossed up value of earnings in a PSA at a flat rate of 13.8%
What are the fractions used for grossing up for Class 1B contribution calcs?
100/80 for basic rate
100/60 for higher rate
100/55 for additional rate
What is the apprenticeship levy?
Charge on large UK e’ers to fund new apprenticeships
Levy applies to e’ers with an annual pay bill of over £3m
Who does the apprenticeship levy apply to?
Levy applies to e’ers with an annual pay bill of over £3m
Who does the apprenticeship levy apply to?
Levy applies to e’ers with an annual pay bill of over £3m
How much is the apprenticeship levy?
0.5% of the pay bill
Reduced by the annual allowance of £15,000
How can e’ers use the apprenticeship levy?
Levy paying e’ers can create an account with HMRC to receive levy funds to spend on apprenticeships (e.g. to pay for Kaplan courses/ ICAEW exams)
- Fund can’t be used to pay wages/ other employment costs such as travel/subsistence
Do self employed or employed indivs pay Class 1 NICs?
Employed
Do self employed or employed indivs pay Class 2 NICs?
Self-Employed
Do self employed or employed indivs pay Class 4 NICs?
Self-Employed
What are Class 2 NICs?
Payable at £3/week if a traders taxable trading income is over the small profits threshold £6,365
What are Class 4 NICs?
Payable at 9% on taxable trading income (calculated using accruals or cash basis) between £8,632 and £50,000
then 2% thereafter
TYU4: Tim is self employed and has taxable trading income of £57,600 for y/e 30 Sept 19
For the y/e 30 Sept 2020, he anticipates taxable trading income of £64,750
Calc the class 2 and class 4 NICs payable by tim for ty 19/20
Class 2 = 52 x £3 = £156
Note: taxable trading income exceeds small profits threshold therefore Class 2 NIC is due
Class 4 contributions
£50k - £8,632 x 9% = £3,723
£57.6k - £50k x 2% = £152
= £3,875
Tax year 19/20
Basis period = y/e 30 Sept 19 (CYB)
taxable trading income = £57.6k
How are NICs dealt with for sole traders as e’ers?
E’ers can deduct their Class 1, Class 1A and Class 1B contributions from trading profits
For ST, this will reduce the amount of income tax and Class 4 NIC payable on their profits
What are the due dates for payments on account by the self-employed?
First POA = 31 Jan in tax year
Second POA = 31 july following end of TY
Balancing payment due by 31 January following the end of the TY
What are self-employed POA based on?
Calculated based on 50% of the prev year’s tax payable by self assessment
When are POA not required for self-employed individuals?
Not available if amount of tax paid in previous TY under SA was less than
£1,000
20% of total taxable liability
When do you have POA for capital gains tax?
NEVER
When do you have POA for Class 2 NIC
NEVER
When do you have POA for self-employed indivs
If tax paid in prev TY was over
£1,000
20% of total taxable liability
What does the balancing payment cover
- Unpaid income tax
- Unpaid self employed NICs
- Capital gains tax
When can indivs reduce their POA?
If an indiv believes their tax liability will be lower than in the prev TY, they can make a claim to reduce their POA
When may a penalty be charged for reducing POA?
If the claim has been made negligently or fraudulently
What is the interest charged on when the actual liability is higher than the estimate of POA when an indiv has opted to reduce it?
Interest is charged on the difference between the POAs actually paid and the lower of:
- reduced POA + 50% of the balancing payment
- Amount which would have been payable had no claim for reduction been made
When does interest run from that is charged on over reductions of POA?
- Runs from the original POA due date and the date of payment of the balance of POA (exclusive)
