M8: National Insurance Flashcards
What are the different classes of national insurance contributions?
(Employers, Self-employed & Individual)
Employers (PAYE System):
- Class 1 Primary NICs
- Class 1 Secondary NICs
- Class 1A NICs
- Class 1B NICs
Self-employed (Self-assessment):
- Class 2 NICs
- Class 4 NICs
Individual:
- Class 3 NICs
What NICs are payable when an individual is employed?
(& HMRC payment deadlines?)
Class 1 Primary Contributions, paid by employee via PAYE.
Class 1 Secondary contributions, paid by employer.
Class 1A and Class 1B NICs are related to taxable employee benefits provided to employees.
1A = any taxable benefits not subject to Class 1B NICs
1B = Taxable benefits where the related income tax liability is covered by a PAYE settlement agreement e.g. Gifts, parties, lunches, staff welfare benefits.
What are the different HMRC payment deadline for all NICs related to when an individual is employed?
CLASS 1 PRIMARY AND SECONDARY: 22nd electronic, 19th non-electronic of the following month after pay.
Deadline 1A = declared by 6th July and paid by 22nd July electronic or 19th July non-electronic.
Deadline 1B = Payable by 22nd October electronic or 19th October non-electronic.
What NICs are payable when an individual is self-employed?
Class 2 and Class 4 NICs.
Class 2 = weekly flat rate payable by 31st January post-tax year
Class 4 = Based on level of profits via self-assessment on HMRC account system.
What are Voluntary Class 3 NICs?
Class 3 NICs are voluntary and are usually paid by individuals who do not have enough contributions to gain entitlement to contributory state benefits.
e.g. not working/stay at home parent, outside the UK for part of working life.
= Weekly flat rate amount
How are Class 1 primary NICs calculated?
NIC payable at 12% between PA £12,570 and £50,270
Above £50,270 its payable at 2% on amount above.
How are Class 1 secondary NICs calculated?
13.8% on earnings above £9,100 annually,
subject to Employment allowance deduction of up to £5000 per tax year if Class 1 Secondary liability for PY was <£100,000.
How are Class 1A and Class 1B NICs calculated?
1A = 13.8% on value of taxable benefits provided to employee during tax year, which weren’t subject to Class 1B NICs.
1B = 13.8% on the combined amount of the (total value of the taxable benefits + the grossed-up income tax liability) settled on behalf of the employee by an employer.
Grossed up factor = 100 / (100 - Tax rate)
How are Class 2 NICs calculated?
Flat rate of £3.45 per week of self-employment if profits above £12,570, no NICs Payable if profits below.
Generally paid in a lump sum under the self-assessment system by 31 January following the tax year.
How are Class 4 NICs calculated?
9% on profits between £12,570 and £50,270.
+ 2% on profits above £50,270.
PAID ON 31st January and again on the 31st July.
What happens once an individual reaches state retirement age to NI Contributions?
They cease to pay both Class 1 and Class 2 NIC’s and any Class 4 NIC stops at the end of the tax year during which retirement age is reached
If an employee is paid a bonus in one week of the year, what should you look out for when calculating the NICs?
The bonus taking the employee over the Upper Earnings Limit (UEL) of (50,270/52 weeks = £967 weekly) threshold.
e.g. normal weekly earnings = £500 and bonus of £2000.
NIC at 12% = 500pw - Tax free weekly £242 x 0.12
+
NIC at 2% over UEL = 2,500 - 967 x 0.02
= Total NIC
How is the combined amount calculated for Class 1B NICs?
Taxable benefit value + Grossed up income tax due if employee paid
e.g. £60 if employee paid but employer = 60 + 100 / (100-TR) = Grossed up amount.
Why would certain taxable benefits not be disclosed on a P11D form?
The taxable benefits are covered by a PAYE settlement agreement (PSA) where the employer can exclude them from being on the form.
The employer pays Class 1B NICs and settles the income tax due for the employee on their behalf.
