National Insurance Flashcards
What is national insurance?
A way of building entitlement to state benefits
What determines the rate of NIC?
• Earnings
• Self-employed vs Employed
What are the NIC Classes and who sits within each?
Class 1 - employees and employers
Class 2 & 4 - self-employed
Class 3/3a (closed) - voluntary
Which of the many changes to NICs in 2022/23 have remained?
Primary Contribution Threshold to Class 1 of £12,570pa
Which rates are used for NI calculations as a result of changes within 2022/23?
Averages
What is NI charged on?
Earned income
What are the types of earned income which NI is charged on?
• wages
• salaries
• bonuses
• commission
• maternity, paternity, option pay
• golden hello/handshake
• payments from employer to cover liabilities
• monies-like payments
• shares in unapproved schemes
What ages are employees required to pay NIC?
16 - SPA
What are the main differences between employee and employer Class 1 NI?
• employer pays NIC beyond SPA
• NIC deduced before tax for employers
• employers liable to Class 1A NI on BIKs @ 14.53% of taxable benefit
What are the thresholds for employee NICs?
• LEL
• PCT
• UEL
How does the LEL for employee NICs work?
• entitlement to state benefits with no NICs
• min income = £6,396pa / £123pw
• 0% NIC
How does the primary contribution threshold for employee class 1 NICs work?
NI begins being applied at 12.73% on income above £242pw or average annual income £11,908
How does the upper earnings limit for employee class 1 NICs work?
Income above £50,270pa or £967pw charged at 2.73%
What are the 2 thresholds for employer class 1 NICs?
Secondary Threshold
Upper Secondary Threshold
How does the secondary threshold for employer class 1 NICs work?
Charged on employee earnings above £50,270p or £967pw at 14.53%
For employees/apprentices under 21/25
How does the upper secondary threshold work for employer class 1 NICs?
Charged on employee earnings above £9,100 or £175pw at 14.53%
For employees/apprentices over 21/25
What’s the max limit on employer NIC class 1 contributions?
None
How are NICs calculated for company directors?
Annual earnings period - total earnings from the start of the tax year
What is the employer allowance available towards NIC deductions?
£5000
When is the employer allowance for NICs unavailable?
• company has director as only employee
• employer NICs > £100k for the previous year
What ways can NI credits be built up without any contributions?
• 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
What is the definition of employment?
• contract of service rather than a contract to provide services
• employer control
• work is an integral part of the business
When should the HMRC be notified of a change to self employment?
3 months from the month end of the change
How does Class 2 NI work?
• 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
How does class 4 NI work?
• charged on taxable profits
• 9.73% - £11,908 - 50,270
• 2.73% - £50,270+
How is NI charged for individuals with multiple employment?
• individually on each role - can earn up to PCT in each role
• aggregated earnings taken for connected jobs
What is the non-aggregated earnings threshold for individuals with multiple employment earning above the UEL?
- max 53 weeks at UEL charged at 12.73%
- > 53 weeks at UEL charged at 3.25%
Who is the non-aggregated earnings threshold relevant to?
- employees - apply to HMRC for exemption
- employers have no exemption
What are the two types of voluntary national insurance contributions?
Class 3 - to fill gaps in previous 6 years’ records
Class 3a - limited time frame for people reaching SPA before 04/16
How does Class 3 NI work?
- 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
