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RO3: Personal Taxation > National Insurance > Flashcards

National Insurance Flashcards

1
Q

What is national insurance?

A

A way of building entitlement to state benefits

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2
Q

What determines the rate of NIC?

A

• Earnings
• Self-employed vs Employed

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3
Q

What are the NIC Classes and who sits within each?

A

Class 1 - employees and employers
Class 2 & 4 - self-employed
Class 3/3a (closed) - voluntary

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4
Q

Which of the many changes to NICs in 2022/23 have remained?

A

Primary Contribution Threshold to Class 1 of £12,570pa

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5
Q

Which rates are used for NI calculations as a result of changes within 2022/23?

A

Averages

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6
Q

What is NI charged on?

A

Earned income

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7
Q

What are the types of earned income which NI is charged on?

A

• wages
• salaries
• bonuses
• commission
• maternity, paternity, option pay
• golden hello/handshake
• payments from employer to cover liabilities
• monies-like payments
• shares in unapproved schemes

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8
Q

What ages are employees required to pay NIC?

A

16 - SPA

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9
Q

What are the main differences between employee and employer Class 1 NI?

A

• employer pays NIC beyond SPA
• NIC deduced before tax for employers
• employers liable to Class 1A NI on BIKs @ 14.53% of taxable benefit

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10
Q

What are the thresholds for employee NICs?

A

• LEL
• PCT
• UEL

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11
Q

How does the LEL for employee NICs work?

A

• entitlement to state benefits with no NICs
• min income = £6,396pa / £123pw
• 0% NIC

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12
Q

How does the primary contribution threshold for employee class 1 NICs work?

A

NI begins being applied at 12.73% on income above £242pw or average annual income £11,908

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13
Q

How does the upper earnings limit for employee class 1 NICs work?

A

Income above £50,270pa or £967pw charged at 2.73%

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14
Q

What are the 2 thresholds for employer class 1 NICs?

A

Secondary Threshold
Upper Secondary Threshold

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15
Q

How does the secondary threshold for employer class 1 NICs work?

A

Charged on employee earnings above £50,270p or £967pw at 14.53%

For employees/apprentices under 21/25

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16
Q

How does the upper secondary threshold work for employer class 1 NICs?

A

Charged on employee earnings above £9,100 or £175pw at 14.53%

For employees/apprentices over 21/25

17
Q

What’s the max limit on employer NIC class 1 contributions?

A

None

18
Q

How are NICs calculated for company directors?

A

Annual earnings period - total earnings from the start of the tax year

19
Q

What is the employer allowance available towards NIC deductions?

A

£5000

20
Q

When is the employer allowance for NICs unavailable?

A

• company has director as only employee
• employer NICs > £100k for the previous year

21
Q

What ways can NI credits be built up without any contributions?

A

• searching for work
• receiving maternity, paternity, adoption pay
• spouse overseas with armed forces
• ill, sick, disabled
• carer
• carer for child under 12
• jury service
• wrongly imprisoned

22
Q

What is the definition of employment?

A

• contract of service rather than a contract to provide services
• employer control
• work is an integral part of the business

23
Q

When should the HMRC be notified of a change to self employment?

A

3 months from the month end of the change

24
Q

How does Class 2 NI work?

A

• flat charge of £3.15pw for profits > £6,725
• certificate of exemption required for profits < £6,725
• contributory benefits available
• tax appointment if necessary
• £100 fee for non-disclosure

25
Q

How does class 4 NI work?

A

• charged on taxable profits
• 9.73% - £11,908 - 50,270
• 2.73% - £50,270+

26
Q

How is NI charged for individuals with multiple employment?

A

• individually on each role - can earn up to PCT in each role
• aggregated earnings taken for connected jobs

27
Q

What is the non-aggregated earnings threshold for individuals with multiple employment earning above the UEL?

A
  • max 53 weeks at UEL charged at 12.73%
  • > 53 weeks at UEL charged at 3.25%
28
Q

Who is the non-aggregated earnings threshold relevant to?

A
  • employees - apply to HMRC for exemption
  • employers have no exemption
29
Q

What are the two types of voluntary national insurance contributions?

A

Class 3 - to fill gaps in previous 6 years’ records

Class 3a - limited time frame for people reaching SPA before 04/16

30
Q

How does Class 3 NI work?

A
  • can be paid up to 6 years later
  • rate will be the current years rate (15.85pw)
  • can replace insufficient class 1 & 2 contributions
  • collected by NICO
  • cannot be made in the same year someone reaches SPA or beyond

RO3: Personal Taxation (2 decks)

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