Ch 8 - NICs Flashcards
What are the 2 types of national insurance contribution
Class 2
Class 4
Who pays Class 2 NIC?
Sole traders and partners
Aged 16 - state retirement age (assumed to be 65)
Who pays Class 4 NIC
Sole traders and partners (aged 16 - state retirement age (65))
When does Class 2 have to be paid?
If the Profit for the tax year end exceeds the small profits threshold
When does Class 4 have to be paid?
Tax adjusted trading profits that are assessed for income tax
What is the calc for Class 2?
Contributions are calc’ed at flat rate of £2.95 our week if annual small profits threshold of £6,205 is exceeded
What is the annual small profits threshold?
£6,205
What is the calc for Class 4?
Contributions are calculated at
- 9% on profits between £8,424 and £46,350
- 2% thereafter
ROUND at each stage of your workings
What are the due dates on Class 2 and Class 4 payments?
Payable with income tax due under self assessment i.e. by 31 Jan following the end of tax year
When must a trader register with HMRC for NIC and income tax purposes?
Before 31 Jan
Who is responsible for Class 2 and Class 4 contributions in a partnership?
Each partner in a partnership is responsible for his/her own Class 2 and 4 contributions based on their own share of the profits
TYU1: Tim is self-employed and has taxable trading income of £47,600 for the y/e 30 Sept 18
For y/e 30 Sept 19 he anticipates his taxable trading will be £54,750
Calc the Class 2 and Class 4 NICs payable by Tim for tax year 18/19
Class 2 contributions = 52* £2.95 = £153
Class 4 contributions =
£46,350 - £8,424 = £37,926 * 9% = £3,413
£47,600 - £46,350 = £1,250 * 2% = £25
Total class 4= £3,438
Who pays higher rates of NIC, employed or self-employed?
Employees
Who pays Class 1 Primary NIC?
Employees (aged 16 - 65)
Who pays Class 1 Secondary?
Employers (16- no upper limit)
What is Class 1 Primary NIC paid on?
Cash earnings before deductions
Plus vouchers exchange for cash, goods or services
What is the calculations of Class 1 Primary?
Calc’ed at 12% on earnings between £8,424 and £46,350 pa
2% thereafter
Round to the nearest pound at each stage of your workings
What is the calculations for Class 1 Se
- 13.8% on earnings by £8,424 pa in respect of employees aged over 21 and NOT an apprentice
- 13.8% on earnings above £46,350 pa in respect of employees under 21
- 13.8% on earnings over £46,350 for e’ees under 21 and apprentices under 25
Assume 21+ (£8,424 limit) unless otherwise
Round to nearest pound eery time
What is the deadline for paying PAYE?
19th each month
or 22nd if paid electronically
Must pay electronically if have over 250 members of staff
Can pay PAYE quarterly if their average PAYE (income tax and NICs) is under £1.5k
What can be used if an employee is paid evenly throughout the tax year?
Annualised limits can be used
If one week/month the employee receives a bonus or different amount fo pay- then it has to be calc’ed weekly/monthly
TYU2: Alex is paid £410 per week
Calculate the
a. Weekly e’ees Class 1 NIC liability due
b. Weekly e’ers Class 1 NIC liability due
c. Weekly E’es Class 1 NIC liability due if Alex is an employee aged 19
a. Class 1 Primary:
£410 - £162 = £248 * 12% = £30
b. Class 1 secondary
£410 - £162 = £248 * 13.8% = £34
c. Employee pays no NIC as below the UST respectively (£46,350)
Alex’s weekly earnings (£410) are below the weekly UST (£892) so no NICs are due
TYU2: Betty is paid £3,990 per month
Calculate the
a. Monthly e’ees Class 1 NIC liability due
b. Monthly e’ers Class 1 NIC liability due
c. Monthly E’es Class 1 NIC liability due if Betty is an apprentice aged 20
UST = £46,350 for year / £3,863 for month
AUST for monthly = £3,863
a. Class 1 Primary:
£3,863 - £702 = £3,161 * 12% = £379
£3,990 - £3,863 = £127 * 2% = 3
Total Class 1 primary = £382
b. Class 1 secondary
£3,990 - £702 = £3,288 * 13.8% = £454
c. Employee pays no NIC as below the AUST respectively (£46,350)
Monthly earnings are above AUST (£3,863) so NICs are due on excess
£3,990 - £3,863 = £127 * 13.8%
NIC amounts calc’d in a-c above are payable on 19th or 22nd (electronically) after month
What happens if total secondary Class 1 NIC is less than the limit for the employer’s allowance?
Then they pay no E’er secondary
TYU3 Anneli works for Strathmore Ltd and is paid a salary of £400/week
She is also paid a bonus of £2k in the last week of December
What is Anneli’s liability to class 1 NICs for 18/19
Weekly limit = lower limit £162
Upper limit = £892
Pay Class 1 NICs on earnings of £400/week for 51 weeks and earnings of £2,400 for 1 week
Total liability =
£400-£162 = £238 * 12% = £29 * 51 weeks = £1,479
£892 - £162 = £730 * 12% * 1 week = £88
£2,400 - £892 = £1,508 * 2% * 1 week = £30
Total = £1,597
When is the employment allowance not available?
When a company only has a single director and no other employees
Should you always use E’era allowance in the exam?
Yes, unless told otherwise
TYU4 Jamies is employed by Drop Ltd. Jamie received the following from Drop Ltd in 18/19
Salary £71,400
Vouchers exchangeable for goods £650
Total employment income £72,050
a. What is Jamie’s liability to Class 1 NICs for 18/19?
b. What is Drop Ltd liability to class 1 NICs for 18/19 in respect of Jamie?
Earnings for NIC Class 1 includes both salary and vouchers
a. Jamie’s liability to class 1 NICs
(£46,350 - £8,424) = £37,926 * 12% = £4,551
(£72,050 - £46,350) = £25,700 * 2% = £514
Total = £5,065
b. Drop Ltd’s liability to class 1 NICs for 18/19 in respect of Jamie
£72,050 - £8,424 = £63,626 * 13.8% = £8,780
Less E’er allowance £(3,000)
Total = £5,780
What are Class 1A contributions paid on and who pays them?
Paid by employers only (NOT employees)
Paid on the value of assessable benefits excluding vouchers exchangeable for cash, goods or services (which are liable to Class 1)
Who pays Class 1A contributions?
Employers
What is the Class 1A charge?
13.8% * value of assessable benefit
Calc in the same way as for income
How often is Class 1A paid?
Annually
What is the deadline for Class 1A?
19 July
or 22 July if paid electronically
after the tax year
TYU5: Sven is employed by Knot Ltd and earns a salary of £25k per year.
During TY 18/19 he receives the following benefit
Car benefit £4.5k
Fuel benefit £4.5k
Medical insurance £1.8k
Vouchers exchangeable for goods £1k
Calc the class 1A liability for Knot Ltd for the TY 18/19 and state the due date for payment
Knot Ltd will pay Class 1A NIC at 13.8% on all rates except vouchers, will will be subject to Class 1 NICs
Benefits Car benefit £4.5k Fuel benefit £1.7k Medical insurance £1.8k Taxable benefits for Class 1A = £8k
Class 1A (£8k * 13.8%) = £1,104
Payable by 19 July 2019
or 22 July if paid electronically
Are class 1 secondary and class 1A deductible for employers and employees?
Yes they are tax deductible expenses against their profits for EMPLOYERS
Employees get no tax relief on their contributions
TYU6: Sian is a soler trader with a 31 March y/e
Her only e’er is Henry who is paid an annual salary of £77k
Henry was provided with a company car throughout the tax year 18/19 which had a list price of £18.2k
Car has CO2 emissions of 138g/km
Petrol for both business and private mileage is provided by Sian (owner)
a. Calc the NI contributions payable by Henry in 18/19
b. Calc NI contributions payable by Sian for 18/19 for Henry
c. Calc total tax deductible expenses for Sian in respect of employing Henry during y/e 31 March 19 assuming total running costs of the car (incl fuel) was £200/month
a. Class 1 employee contributions payable by Henry
£46,350 - £8,424 = £37,926 * 12% = £4,551
£77,000 - £46,250 = £30,650 * 2% = £613
b. Class 1 e’er contributions by Sian
£77,000 - £8,424 = £68,576 * 13.8% = £9,463
Less e’er allowance £(3,000)
Total = £6,463
Benefits payable
Motor car = £20% + (135-95/5) = 28% * £18,200 = £5,096
Private fuel = 28% * £23,400 = £6,552
Total for b. = (£6,552 + £5,096) * 13.8% = £1,607
Taxable allowable cost (ignoring capital allowances)
c. Class 1 employer £6,463
Class 1A £1,607
Salary £77,000
Running costs of car £200*12 = £2,400
Total allowable cost = £87,470
