2 - National Insurance Contributions Flashcards
What are the four main classes of NIC?
1 - employees and employers %
2 - self employed flat
3 - voluntary flat
4 - self employed %
Which state benefits depends on a individual’s contribution to NIC?
New state pension New style job seekers Bereavement payments Contribution based employment and support allowance Maternity allowance
What are the factors that indicate employment rather than self employment?
Contract Terms of the contract Control Substitution Integration Length of service Risk
What are the earnings that are used to calculate NIC contributions?
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)
During what ages are NIC’s payable?
age 16 to state pension age
If an employee works past SPA, would they and the employer still need to pay NIC’s?
The employee would not, the employer would still have to pay
When does an employer not have to pay NIC’s?
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
What are the primary and secondary thresholds set at? (for payment of class 1 NIC)
£183 per week
£169 per week
What is the lower earnings limit?
Minimum level of earnings for an employee to be entitled to contributory social security benefits
£120 per week
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
£962 per week
What are the level of employee NIC contributions?
Nil below primary threshold
12% over the threshold up to the upper limit
2% above the Upper limit - called the additional primary %
How much is the primary allowance given to employers per year?
£4,000
If a woman was married and employed before 6th April 1977, what would impact her ability to claim the reduced rate of NIC’s?
Divorce or annulment
Remarriage
Two consecutive years with no earnings above LEL and no self employed earnings
If normal contributions are paid in error
What are subject to class 1A contributions by employers?
Company cars
Medical insurance
Pay-rolled and non pay-rolled benefits
When are Class 1A contributions due from employers?
Due in 22nd July after the tax year to which they relate
What might be the penalty imposed for late payment of class 1 NIC’s?
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
What are the charges for late reporting?
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
When will the HMRC attempt to collect NIC’s from an employee working in the UK from another country?
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
How long would the HMRC continue to collect NIC’s from a UK national who has gone abroad to work?
for 52 weeks
How are company directors treated in terms of the collection of NIC’s?
The total earnings form the start of the tax year are considered when collection is made
What are the methods used by company directors and family run businesses to reduce tax and NIC contributions?
Paying themselves below the national living wage
Paying dividends to working spouses
Drawing funds from the company in the form of dividends
Which workers are treated as employees for NIC but not treated as employees for tax purposes?
Domestic workers and office cleaners Agency workers Lecturers and instructors Ministers of religion Film industry and TV workers Labour only sub contractors
Which groups of people qualify for modified NIC arrangements?
Crown servants Sub postmasters Oil rig workers Aircrew Mariners
When might an individual receive credits to their contribution records when they are not paying?
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
How does associated employments help reduce those looking to take advantage of contribution thresholds to attempt to avoid NIC’s?
If there is a link between jobs, employments must be aggregates and treated as one
If a person has more than one job which takes them above the maximum threshold when combining both incomes, what can they do?
They can apply for deferment for earning above the limit
Why do self employed individuals pay lower NICs?
The receive fewer state benefits - only class 2 NIC’s give entitlement to state benefits, class $ give no benefit
What is the rate for class 2 NIC’s?
Flat rate for each week the individual is self employed
Nothing is due if profits are below £6475
How are Class 4 NIC’s calculated?
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)
what is the rate for class 4 NIC’s?
9% (between lower and higher limits)
2% above the upper limit
How are class 2 contributions collected?
Paid under the self assessment system with the same due dates
How are class 4 contributions paid?
Paid with tax in two payments on account on 31st Jan & 31st July, with the balancing payment due on the following 31st Jan
When are class 2 and 4 contributions paid by those why become self employed outside of the UK?
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
How are share fishermen treated?
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
What is the maximum rate a person paying class 1 and class 2 contributions is charged?
Must not be more than the primary maximum rate for Class 1 - £50,000 - £9,500 at 12 % = £4860
What is the maximum for class 2 and class 4 contributions?
Class 2 £3.05 x 52 = £158.60
Class 4 £50,000 - £9500 at 9% = £3645
Maximum = £3803
If someone is both employed and self employed, what is the maximum rate?
The maximum payable for Class 4 £3645 less the main rate of class 1 paid
Why would someone pay class 3 voluntary contributions?
To fill in the gaps in their contributions
What is the residence check for class 3 contributions?
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
What is the time limit for making additional contributions for previous years?
Up to six years after the tax years for which they relate
what types of actions do employers take to NIC plan?
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
