Nathional Insurance Flashcards
National Insurance Class 1 National Insurance Class 1 Primary contributions Class 1 Secondary contributions Class 1A contributions Tax planning
Who is required to pay National Insurance?
- Anyone aged 16 and over
- Employees earning above £12,570 per annum (£242 per week)
- Self-employed individuals with profits exceeding a specific level
National Insurance contributions help fund various state benefits and services, including healthcare and pensions.
What is the purpose of paying National Insurance?
You pay National Insurance to qualify for certain state benefits, such as the state pension.
Contributions impact your eligibility for benefits that provide financial support during retirement or times of need.
What are the four classes of National Insurance?
Class 1: Payable by employees and employers.
Class 2: Payable by the self-employed with profits above a specific level.
Class 3: Voluntary contributions for those wishing to maintain benefit entitlement.
Class 4: Payable by the self-employed with higher profits.
Each class has different rates and eligibility criteria based on employment status and income level.
What is Class 1 National Insurance?
Class 1 National Insurance is a type of employment NI that is an expense for both the employer and the employee.
This class contributes to state benefits and is calculated based on earnings from employment.
Who pays Class 1 Primary National Insurance?
Class 1 Primary National Insurance is paid by employees.
This contribution is deducted from gross earnings before any allowable deductions.
What are the rates for Class 1 Primary National Insurance?
The rates for Class 1 Primary National Insurance are:
Calculated on gross earnings before any deductions:
- 12% on earnings between £12,570 and £50,270.
- 2% on earnings above £50,271.
These rates reflect the contributions made toward state benefits and services.
Who pays Class 1 Secondary National Insurance?
Class 1 Secondary National Insurance is paid by employers.
Employers are responsible for this contribution as part of their payroll obligations.
What are the rates for Class 1 Secondary National Insurance?
The rate for Class 1 Secondary National Insurance is:
- 13.8% on gross earnings above £9,100.
Who pays Class 1A NI?
Employers
This applies to non-cash benefits provided to employees, such as company cars.
What is the annual Employment Allowance, and what are the qualifying conditions?
The Employment Allowance is £5,000 per year, per employer.
Conditions include:
- Not available to companies with only one employee (does not affect sole traders or partnerships).
- Not available if employers had £100,000 or more in Class 1 Secondary contributions in the prior year.
This allowance helps reduce the amount of National Insurance that employers must pay.
What is the rate of Class 1A National Insurance?
The rate for Class 1A National Insurance is 13.8% on all non-cash benefits, with no upper or lower limit.
Employers must account for this rate when providing benefits other than cash payments.
How can employees and employers tax plan for National Insurance contributions?
- Employees can choose to receive non-cash benefits, like a company car, instead of cash salary or bonuses, as they only pay Class 1 Primary contributions on cash earnings.
- Employers may provide exempt benefits as part of a remuneration package instead of taxable benefits or cash payments, paying Class 1 Secondary on cash earnings and Class 1A on taxable benefits.
Tax planning strategies can minimize the overall National Insurance liability for both parties, benefiting financial outcomes.
