Chapter 2 - National Insurnace Contributions Flashcards
Sophie is provided with a company car valued at £10,000. What National Insurance contributions [NICs] are payable on the value of the company car?
a. Sophie’s employer will have to pay class 1A NICS.
b.Sophie will have to pay class 1 NICs.
C.Sophie will pay class 1 NICs and her employer will pay class 1A NICS.
d. Both Sophie and her employer will need to pay class 1A NICs.
Clear my choice
a. Sophie’s employer will have to pay class 1A NICS.
Most fringe benefits are subject to employers’ NICs but not employees’ contributions. These are class 1A contributions. For example, company cars and private medical insurance provided by the employer are subject to class 1A NICs.
National Insurance contributions above the upper earnings limit are pavable by an
a.emplover at 12% with a limit b.employee at 2% with no limit.
c. employee at 12% with a limit
d employer at 2% with no limit
b.employee at 2% with no limit.
The employee contributions are as follows:
- No employee NICs are payable on earnings below the primary threshold (£242 a week in 2023/24).
- When earnings exceed these thresholds, employees have to pay NICs at 12% on the excess up to the UEL. This rate is the main primary percentage or main employees’ rate.
- In addition, employees pay 2% on earnings above the UEL; this rate is called the additional primary percentage.
Amir is aged 35 and has been employed by a luxury car manufacturer since leaving school, earning £6,500 during December 2023. What will his class 1 National Insurance contributions be for this month in respect of his earnings?
a. £654 24
b. £376.92.
с. £491.28.
d. £423.14.
d. £423.14.
The employee contributions are as follows:
- No employee NICs are payable on earnings below the primary threshold (£242 a week in 2023/24).
- When earnings exceed these thresholds, employees have to pay NICs at 12% on the excess up to the UEL. This rate is the main primary percentage or main employees’ rate.
- In addition, employees pay 2% on earnings above the UEL; this rate is called the additional primary percentage.
Who would NOT be able to pay class 3 National insurance contributions [NICs] for the tax vear
2023/24?
а.Joseph, who has been resident in the UK for all of 2023/24, with a previous liability to class 2 NICs.
b.Aiden. who arrives in the UK on 13 September 2023 with no previous liability to NICs.
C. Gerry, who arrives in the UK on 20 October 2023 with no previous liability to NICs.
d. Carla, who arrives in the UK on 2 January 2024, with a previous liability to class 1NICs.
C. Gerry, who arrives in the UK on 20 October 2023 with no previous liability to NICs.
Payment of class 3 NICs is subject to a residence condition. The person must:
- be resident in the UK throughout the tax year concerned;
- have arrived during the tax year and been previously liable to pay class 1 or 2 NICs; or
- have arrived during the tax year and been resident for 26 weeks.
The amount for 2023/24 is £17.45 per week (£907.40 per year).
Melanie’s taxable profits from self-employment for 2023/24 are £62,000. What is Melanie’s total National Insurance contribution liability for the year?
a. £3807
B. £3627.60
C. £4448.70
D. £5580
a. £3807
Class 2 NICs contribution rates, weekly flat rate of £3.45 with a max payment of £179.40PA. Lower profits limit of £12,570 and small profits threshold of £6,725
Class 4 NICs are payable at the main rate on self-employed earnings that fall between the lower and upper annual limits.
Class 4 main rate is 9%, with lower annual limit of £12,570 and upper of £50,270, anything above that limit is taxed at 2%
Class 2
£3.45 × 52 = £179.40
Class 4
[(£50,270 - £12,570) × 9%] + [(£62,000 - £50,270) × 2%] = £3,393.00 + £234.60 = £3807
Alan is a member of an unapproved share option scheme and Gary is a member of an approved share option scheme. National Insurance contributions are:
A. payable on Gary’s scheme but not Alan’s
B. not pavable on either scheme
C. payable on both schemes
D. payable on Alan’s scheme but not Gary’s
d payable on Alan’s scheme but not Gary’s
NICs are payable on shares that are readily convertible into cash acquired under unapproved share option schemes.
Shares acquired under approved arrangements (e.g. profit-sharing, approved share option and the share incentive plan) are NIC free
Dave has received a wide range of payments from his employer over the last year. Which payment would NOT typically be considered to be earnings for National Insurance contributions purposes?
A. Vouchers to say thank you for a job well done.
B. Damages following a small accident at work.
C. Four weeks’ holiday pay.
D. School fees for his son who is at prep school.
B. Damages following a small accident at work.
The earnings on which contributions are calculated include regular wages and salary as well as many other items, such as; bonuses, incentive payments, maternity/paternity pay & lump sums for joining/leaving a company
examples of payments on which NICs might not be due are compensation, damages and redundancy;
Becky, a director of her own limited company, is keen to minimise her tax liabilities so she pays herself predominantly in dividends. In order to remain entitled to contributory social security benefits, her salary must be above the:
A. Lower earnings limit.
B. primary contributions threshold.
C. secondary contribution threshold.
D. upper earnings limit.
A. Lower earnings limit.
• The primary contribution threshold, set at £242 per week for 2023/24, is the level of earnings above which employees have to pay class 1 NICs.
• The secondary threshold, set at £175 per week for 2023/24, is the level of earnings above which employers have to pay class 1 NICs for employees aged 21 and over, for apprentices aged 25 and over, and for armed forces veterans not in the first year of their civilian employment.
•The lower earnings limit (LEL), set at £123 per week for 2023/24, establishes the minimum level of earnings needed for an employee to be entitled to contributory social security benefits (such as the new State Pension).
• The upper earnings limit (UEL), set at £967 per week for 2023/24, establishes the maximum level of earnings on which an employee must pay NICs at the main rate. The UEL is aligned with the higher rate income tax band.
George. aged 27, earns 525 in the first week of January 2024. If he does not work in a freesort and is not an Armed Forces veteran. how much will George and his emplover pay in class 1 National Insurance contributions in total for that week?
A. £33.96
B. £648 30
C. £90.16
D. £82.26
D. £82.26
• Employee
- No employee NICs are payable on earnings below the primary threshold (£242 a week).
- When earnings exceed these thresholds, employees pay NICs at 12% up to the UEL. (£242-£967 PW)
- employees pay 2% on earnings above the UEL. (£967+ PW)
• Employer
- the first £175 of earnings is free of employer contributions.
- Above this threshold, the employer pays 13.8% of the employee’s earnings. With no income ceiling on employers’ NICs.
For employees aged under 21, apprentices aged under 25 and armed forces veterans in the first year of their civilian employment, the first £967 of earnings is free of employer contributions, with 13.8% paid on earnings above this threshold.
• For qualifying employees working in freeports, the first £481 of earnings is free of employer contributions, with 13.8% paid on earnings above this threshold.
Bill, aged 30. earns £1,100 per week in December 2023 as a call centre operative. What are his employers weekly class.1 National insurance
contributions for him, assuming he is not an Armed Forces veteran?
a. £151.80.
b. £127.65.
c. £102.96.
D. £139.21
b. £127.65.
- the first £175 of earnings is free of employer contributions.
- Above this threshold, the employer pays 13.8% of the employee’s earnings. With no income ceiling on employers’ NICs.
£1,100 - £175 = £925
£925 x 0.138 = £127.65
In the tax year 2023/2024, Rebecca is liable to pay Class 4 National Insurance contributions. This shows that she has
A. been on maternity leave for part of the tax year.
B. earned at least part of her income from self-employment.
C. earnings from at least two concurrent sources.
D. not been liable for Class 2 National Insurance contributions.
B. earned at least part of her income from self-employment.
Class 4 NICs are payable at the main rate on self-employed earnings that fall between the lower and upper annual limits.
• The maximum payable at the main rate is £3,393.00 (£50,270 - £12,570) × 9%.
• Class 4 NICs are payable at the additional rate of 2% on self-employed earnings above the upper limit.
Margaret, a married woman with employed earnings, has NOT paid any employee National Insurance (NI) contributions in the tax year 2023/2024, but her NI contribution record has been credited. This is because
A. her earnings were marginally above the lower earnings limit (LEL).
B. her husband’s employed earnings combined with hers exceeded the primary contribution threshold.
C. she overpaid in the preceding tax year.
D. she retired part way through the tax year.
A. her earnings were marginally above the lower earnings limit (LEL).
Where individuals are not paying NICs, their contribution records may be credited as if minimum contributions had been paid:
• during periods of full-time training and for a short period afterwards;
• during periods of unemployment and sickness;
• during periods of entitlement to Statutory Maternity, Paternity, Shared Parental and Adoption Pay (SMP, SPP, ShPP and SAP); and
• where income is below the primary contribution threshold, but at or above the LEL.
This is a highly complex area and some individuals may not be entitled to the full range of benefits, if they have not paid nor received credit for enough contributions.
Stuart owed a balancing tax payment of £10,000 on 31st January 2024. In late March 2024, he still had not paid it. What penalty will HMRC usually charge Stuart?
A. £250
B. £500
C. £750
D. £1000
B. £500
Correct. A 5% penalty is due on tax unpaid more than 30 days after the balancing payment is due. 5% of £10,000 = £500.
- Chapter 6, Section A4, Learning Outcome 1.6
Natalie is a company director and is paid a flat fee of £20,000. How are her National Insurance contributions calculated?
By considering her total earnings from the start of the tax year and using the annual limits
As a company director, Natalie has an annual earnings period. Each time she is paid, her total earnings from the start of the tax year must be taken into account when working out her NICs and annual limits will apply. - Chapter 2, Section B7, Learning Outcome 1.2
Bertie, aged 45, is a self-employed accountant who has profits in 2023/23 of £55,000. His total liability to National Insurance contributions will be:
A. £5,487.60
B. £3.572.40
C. £3,667.00
D. £4,798.00
C. £3,667.00
As a self-employed accountant earning £55,000, Bertie will be liable to both class 2 and class 4 National Insurance contributions.
Class 4 is worked out as follows:
Class 4: £50,270 - €12,570 = £37,700 x 9% = £3,593.00.
£55.000 - £50,270 = £4,730 x 2% = £94.60.
Class 2: £3.45 x 52 = £179.40.
Giving a total of £3,393.00 + £94.60 + £179.40 = £3.667.00. C is therefore the correct
answer.
