2 - National Insurance Contributions

Question 1

What are the four main classes of NIC?

Answer 1

1 - employees and employers %
2 - self employed flat
3 - voluntary flat
4 - self employed %

Question 2

Which state benefits depends on a individual’s contribution to NIC?

Answer 2

New state pension
New style job seekers
Bereavement payments
Contribution based employment and support allowance
Maternity allowance

Question 3

What are the factors that indicate employment rather than self employment?

Answer 3

Contract
Terms of the contract
Control
Substitution
Integration
Length of service
Risk

Question 4

What are the earnings that are used to calculate NIC contributions?

Answer 4

Regular wages and salary
Bonus, overtime and holiday pay
Maternity, paternity, shared parental, adoption and sick pay
Lump sums on joining or leaving (excluding compensation, damages and redundancy)
Payments to meet personal debts - home telephone bills, school fees, personal credit card expenses, premiums on insurance policies
Payments in kind and assets that can be converted to cash (premium bonds, gilts, vouchers for cash, unit trusts, shares that can be traded, gold bullion, metals and assets that could be sold on an exchange)

Question 5

During what ages are NIC’s payable?

Answer 5

age 16 to state pension age

Question 6

If an employee works past SPA, would they and the employer still need to pay NIC’s?

Answer 6

The employee would not, the employer would still have to pay

Question 7

When does an employer not have to pay NIC’s?

Answer 7

Employees under 21 on earnings under the upper limit
Apprentices up to the secondary upper limit
From 2021, employers of armed forces veterans in the first year of employment

Question 8

What are the primary and secondary thresholds set at?
(for payment of class 1 NIC)

Answer 8

£183 per week

£169 per week

Question 9

What is the lower earnings limit?

Minimum level of earnings for an employee to be entitled to contributory social security benefits

Answer 9

£120 per week

Question 10

What is the upper earnings limit?

maximum level of earnings which an employee must pay NIC at the main rate and aligned to the higher rate tax band

Answer 10

£962 per week

Question 11

What are the level of employee NIC contributions?

Answer 11

Nil below primary threshold
12% over the threshold up to the upper limit
2% above the Upper limit - called the additional primary %

Question 12

How much is the primary allowance given to employers per year?

Answer 12

£4,000

Question 13

If a woman was married and employed before 6th April 1977, what would impact her ability to claim the reduced rate of NIC’s?

Answer 13

Divorce or annulment
Remarriage
Two consecutive years with no earnings above LEL and no self employed earnings
If normal contributions are paid in error

Question 14

What are subject to class 1A contributions by employers?

Answer 14

Company cars
Medical insurance
Pay-rolled and non pay-rolled benefits

Question 15

When are Class 1A contributions due from employers?

Answer 15

Due in 22nd July after the tax year to which they relate

Question 16

What might be the penalty imposed for late payment of class 1 NIC’s?

Answer 16

Start at 1%, increasing depending on the number of late payments within the same tax year
5% may be charged where payments are six months late, a further 5% if still outstanding after 12

Question 17

What are the charges for late reporting?

Answer 17

Charged on a monthly basis
No penalty for the first late during a tax year
There after a monthly late filing penalty of between £100 and £400 depending on the number of employees
An additional 5% may be charges where a submission is 3 months late

Question 18

When will the HMRC attempt to collect NIC’s from an employee working in the UK from another country?

Answer 18

If they are working in the UK on a regular basis

In less clear cut cases, the HMRC may have to wait for the person to be resident for 52 weeks

Question 19

How long would the HMRC continue to collect NIC’s from a UK national who has gone abroad to work?

Answer 19

for 52 weeks

Question 20

How are company directors treated in terms of the collection of NIC’s?

Answer 20

The total earnings form the start of the tax year are considered when collection is made

Question 21

What are the methods used by company directors and family run businesses to reduce tax and NIC contributions?

Answer 21

Paying themselves below the national living wage
Paying dividends to working spouses
Drawing funds from the company in the form of dividends

Question 22

Which workers are treated as employees for NIC but not treated as employees for tax purposes?

Answer 22

Domestic workers and office cleaners
Agency workers
Lecturers and instructors
Ministers of religion
Film industry and TV workers
Labour only sub contractors

Question 23

Which groups of people qualify for modified NIC arrangements?

Answer 23

Crown servants
Sub postmasters
Oil rig workers
Aircrew
Mariners

Question 24

When might an individual receive credits to their contribution records when they are not paying?

Answer 24

Periods of full time training and for a short period afterwards
Periods of unemployment and sickness
Periods of entitlement to statutory maternity, paternity, shared parental and adoption pay
Where income is below the primary contribution threshold but not above LEL

Question 25

How does associated employments help reduce those looking to take advantage of contribution thresholds to attempt to avoid NIC’s?

Answer 25

If there is a link between jobs, employments must be aggregates and treated as one

Question 26

If a person has more than one job which takes them above the maximum threshold when combining both incomes, what can they do?

Answer 26

They can apply for deferment for earning above the limit

Question 27

Why do self employed individuals pay lower NICs?

Answer 27

The receive fewer state benefits - only class 2 NIC’s give entitlement to state benefits, class $ give no benefit

Question 28

What is the rate for class 2 NIC’s?

Answer 28

Flat rate for each week the individual is self employed

Nothing is due if profits are below £6475

Question 29

How are Class 4 NIC’s calculated?

Answer 29

Earnings that are profits that are chargeable for income tax (after capital allowances & trading losses)
Pension contributions and personal allowances are not deducted (as they are for income tax)

Question 30

what is the rate for class 4 NIC’s?

Answer 30

9% (between lower and higher limits)

2% above the upper limit

Question 31

How are class 2 contributions collected?

Answer 31

Paid under the self assessment system with the same due dates

Question 32

How are class 4 contributions paid?

Answer 32

Paid with tax in two payments on account on 31st Jan & 31st July, with the balancing payment due on the following 31st Jan

Question 33

When are class 2 and 4 contributions paid by those why become self employed outside of the UK?

Answer 33

Self employed are only liable if they are usually resident in the UK
Those who become self employed outside of the UK may wish to continue contributions
People coming to the UK may choose to pay class 2 immediately.

Class 4 are not due unless the person is resident and self employed in the UK

Question 34

How are share fishermen treated?

Answer 34

They pay class 2 and class 4 of any profits from a fishing boat registered in the UK.

They pay a higher rate of class 2 - £3.70 per week and in return qualify for the new style job seekers

Question 35

What is the maximum rate a person paying class 1 and class 2 contributions is charged?

Answer 35

Must not be more than the primary maximum rate for Class 1 - £50,000 - £9,500 at 12 % = £4860

Question 36

What is the maximum for class 2 and class 4 contributions?

Answer 36

Class 2 £3.05 x 52 = £158.60
Class 4 £50,000 - £9500 at 9% = £3645
Maximum = £3803

Question 37

If someone is both employed and self employed, what is the maximum rate?

Answer 37

The maximum payable for Class 4 £3645 less the main rate of class 1 paid

Question 38

Why would someone pay class 3 voluntary contributions?

Answer 38

To fill in the gaps in their contributions

Question 39

What is the residence check for class 3 contributions?

Answer 39

Resident throughout the tax year in the UK
Arrived during the tax year and previously been liable to pay class 1 or 2
Have arrived during the tax year and be resident for 26 weeks

Question 40

What is the time limit for making additional contributions for previous years?

Answer 40

Up to six years after the tax years for which they relate

Question 41

what types of actions do employers take to NIC plan?

Answer 41

Pay profits as dividends (however care must be taken in regard to pension contribution and tax relief)
Reduce earnings of employees - however this can restrict or reduce the value of state benefits
Employing spouses and other family members at salaries below the threshold