Ch 2 - NICs Flashcards
NICS are only payable on what kind of income?
Earned income
ignore dividend/rental income/savings income
What classes of NICs do self-employed pay?
Class 2 (flat) & class 4 (%)
Class 1 NICs are only applicable to who?
Employed individuals
Are contributions made into an occupational pension scheme liable to NIC?
No
If shares are readily convertible into cash and have been acquired through an unapproved share option scheme, will they be liable to NIC?
Yes, payable on shares
What is the Lower Earnings Limit (LEL)?
The minimum level of earnings for an employee to be entitled to contributory State benefits
What is the Primary Contribution Threshold (employee)?
Weekly £184
Monthly £797
Yearly £9,569
Employees pay NICs above this amount
What is the Secondary Contribution Threshold (employer)?
Weekly £170
Monthly £737
Yearly £8,840
Employers pay NICs above this amount
What is the Upper Secondary Threshold (UST)/Apprentice Upper Secondary Threshold (AUST)?
Weekly £967
Monthly £4,189
Yearly £50,270
What is the rate of Class 1 NICs for an employee?
- Have nothing to pay if they earn below the primary threshold
- 12% on earnings above the primary threshold up to the UEL
- 2% on earnings above the UEL (additional primary percentage)
What is the rate of Class 1 NICS for employers?
- Have nothing to pay up to the secondary threshold
* 13.8% on anything above the secondary threshold, with no upper limit
What is the rate of Class 1 NICS for apprentices under 25 or employees under 21?
- Nothing to pay up to the UST/AUST (£967 p/week)
- 13.8% on anything above
What is the employment allowance for employers?
£4000
When is the employment allowance withdrawn?
- Director is sole employee
- If an employer had contributions > £100,000 in prev year
What is the Married Women Reduced Rate for NICs?
- For earnings of £184-£967 (UEL) pw, the rate is reduced to 5.85%
- Anything above £967 pw is 2%
What was the cut off date for Married Women Reduced Rate?
6th April 1977
When is the Married Women’s Reduced Rate revoked?
- Divorce
- Remarriage
- Earnings less than LEL for 2 years in a row with no self employed earnings
When are Class 1A contributions paid?
paid by employers in relation to most benefits in kind
What is the rate of Class 1A NICs?
Flat rate of 13.8%
Trivial benefits costing what, are also free of NICs?
£50 or less
How are Class 1 NICs collected for employees?
Collected through PAYE
Who is responsible for the calculation of Class 1 NICs?
Employer
When are Class 1A benefits collected/due?
Due on 22nd of July of the end of the tax year to which they relate (19th of July if not electronic)
What form must Class 1A benefits be declared on?
P11D (submitted by 6th July)
What are the penalties for the late payment of Class 1 NICs?
- No penalty for the first late payment in a tax year, unless it is more than 6 months late
- Penalties start at 1% of the late amount and increases depending on the amount of late payments in the same tax year
- 5% will be charged for payments more than 6 months late and a further 5% if the payment is still not received after 12 months
- any late payment will be charged interest daily
What are the penalties for the late submission of Class 1 NICs?
- There is no penalty for the first late submission during the tax year, but for any further late submissions, a late-filing charge of £100-£400 is applied depending on the number of employees
- If a submission is 3 months late, an additional 5% can be charged
EEA nationals should only make social security contributions where?
In one state
normally same country as employee contributions
If a UK worker is temporarily in EEA/Norway, can ask HMRC to issue certificate to allow UK contributions for how many years?
2 years (3 in Norway)
If a UK national goes to work abroad for a UK employer, HMRC will continue to collect NICs for how long?
52 weeks
How are NICs collected for a director?
The total earnings within a tax year are used
If a director takes dividends rather than salary, is this liable to NICs?
No
What is the minimum that a director must pay themselves?
Minimum national living wage
Which workers will be treated as employees for NIC purposes (not necessarily income tax purposes)?
- Domestic workers and office cleaners
- Agency workers
- Lecturers and instructors
- Ministers of religion
Workers in the film and television industry (except freelance and casual workers who are self-employed) - Labour only subcontractors
What is the NIC treatment of a sub-postmaster?
- Class 1 deducted from salary
- Class 2 + 4 liable on trading profit
What is the NIC treatment of Share Fisherman?
- If a fisherman is self-employed and shares the profits of a fishing boat registered in Great Britain, they are liable to class 2 and 4 NICs, even though they work outside the UK
- A special rate of £3.70 per week for class 2 NICs applies, as they will qualify for new style Jobseeker’s Allowance
What is a Class 3 Contribution?
Voluntary to fill in gaps in contribution record (paid at a flat rate of £15.40 per week)
How long after a tax year can Class 3 NICs be paid?
6 years
How can companies can reduce their NIC liability?
Pay out dividends as opposed to salary
not a deductible expense for corporation tax purposes, unlike salary
What salary means the employee has no NIC liability but still receives entitlement to state benefits?
Between £6,240 (LEL) and £9,569 (Primary Contribution Threshold)
What is the rate of Class 2 Contributions?
• Charged at a flat weekly rate of £3.05 when the individual earns over the small profits threshold of £6,515
How are Class 2 contributions paid?
Paid via the self-assessment system and due on the following 31st January after the end of the tax year
What is the threshold for Class 4 contributions?
Lower annual limit (£9,569)
What are the rates and thresholds for Class 4 contributions?
Between £9,569 - £50,270 = 9%
Above £50,270 - 2%
How are Class 4 contributions paid?
Paid via the self-assessment system, however it is paid the same time as income tax with 2 payments on account (31st January during the tax year and 31st of July after the tax year) and a balancing payment the following 31st January
How can an individuals who become self-employed outside the UK maintain their contribution record for State benefits purposes?
Opt to pay Class 2s
What are the residency conditions for Class 3s?
- The individual must have been a resident in the UK throughout that tax year; or
- Arrived in the UK during the tax year and has previously been liable for class 1 or class 2 NICs; or
- Arrived in the UK during the tax year and has been resident for 26 weeks
How is a director taxed?
As an employee (12% then 2%)
How does deferment work if an individual works for two unconnected companies?
1) One employer is instructed to deduct employees NICs at only 2% on annual earnings above £9568
2. Calculate Annual Maximum limit (£4884.24)
+ NICs payable at 2% in excess of £40,702
- NICs actually paid
= Payable after end of tax year
Page 88 CII RevisionBook
If a person is employed and self employed, what are their Class 4 Contributions limited to?
(Max Class 4 NICs at UEL*) - (Class 1 NICs actually paid)
*(£50270-£9568) x 9% = £3663.18
Childcare benefits are free of NICs up to what amount
£55 p/week
Are NICs payable on unapproved share schemes?
Yes
Are NICs payable on approved share schemes?
No
