National Insurance Flashcards
The main classes of contribution:
Class 1 employee
Class 1 employer’s
Class 1 A
Class 2
Class 4
The class 1 employee basis of assessment
- a percentage based contribution levied on employee earnings in excess of the employee limit for the tax year 2022/23 of £12,570
The class 1 employer’s basis of assessment
- a percentage based contribution levied on employee earnings in excess of the employer’s limit for the tax year 2022/23 of £9,100
The class 1A basis of assessment
- a percentage based contribution levied on taxable employment benefits provided to employees
The class 2 basis of assessment
- a flat rate weekly contribution
The class 4 basis of assessment
- a percentage based contribution levied on tax adjusted trading profits in excess of the lower profits limit £12,570 for the tax year 2022/23
What are the NICs payable in respect of employees?
- class 1 employee NICs
- class 1 employer’s NICs
- class 1A NICs
Earnings for the purpose of class 1 NICs consists of:
- any remuneration derived from the employment
- paid in cash or assets which are readily convertible into cash
What is the calculation of class 1 NICs is based on?
- gross earnings with no allowable deductions
What will be included in gross earnings regarding class 1 NICs?
- wages, salary, overtime pay, commission or bonuses
- sick pay, including statutory sick pay
- tips and gratuities paid or allocated by the employer
- reimbursement of the cost of travel between home and work
- vouchers
What will be not included in gross earnings regarding class 1NICs?
- exempt employment benefits
- most taxable non-cash benefits
- tips directly received from customers
- mileage allowance received from the employer provided it does not exceed the HM Revenue and Customs approved mileage allowance rate
- expenses paid for or reimbursed by employer for which an income tax deduction would be available
Class 1 NICs are payable where the individual:
- is employed in the UK
- is aged 16 or over, and
- has earnings in excess of the earnings limit
The employee contributions payable are calculated as:
- 13.25% on gross earnings between £12,571 and £50,270
- 3.25% on gross earnings in excess of £50,270
Class 1 employer’s NICs payable by who?
- aged 16 or over
- until the employee ceases employment
- they are deductible expense when calculating the employer’s tax adjusted trading profits
Employer’s contributions are calculated as:
- 15.05% on all gross earnings above £9,100.
How is calculated class 1 NICs for a company director?
- as if the director had an annual earnings period, regardless of how the employee is paid
How are carried out payments of class 1 NICs by the employer?
- the employer is responsible for calculating the amount of class 1 employee and employer’s contributions at each pay date
- employee contributions are deducted from the employee’s wages or salary by the employer and paid to HMRC on employee’s behalf
- the total employee and employer’s contributions are payable by the employer to HMRC, along with income tax deducted from the employees under PAYE
- the payment is due on the 19th of each month but if paid electronically are normally due on 22nd of each month
- the specific payment rules for very small employers and those not paying electronically
NIC employment allowance
- claim up to £5,000 relief (class 1 NICs)
- cannot be used against any other classes of NICs
- is claimed through the real time information PAYE system
- is not available to companies where a director is the sole employee paid over the earnings limit of £9,100
- is only available to employers with total class 1 employer’s contributions <£100,000 in the previous tax year
Class 1A NICs are payable in respect of:
- exempt benefits (those benefits which are exempt from income tax)
- benefits already treated as earnings and subject to class 1 NICs, such as remuneration received in the form of non-cash vouchers
Calculation of Class 1A NICs
- 15.05% on the value of the taxable benefits
When is the class 1A NICs payable?
- to HMRC by 19 July following the end of the tax year
- electronically by 22 July following the end of tax year.
NICs payable in respect of self-employed individuals
- Class 2 NICs
- Class 4 NICs
Class 3 NICs are payable where the individual:
- is aged 16 or over
- until attaining state pension age
- if the tax adjusted trading profits of the business for the tax year exceed the lower profits limit of £12,570
What is the flat rate for class 2 NICs contribution?
- £3.15 per week
- £164 total
- are not allowable deduction for the purposes of calculating the individual’s income tax liability
- are not a deductible expense when calculating the business’s tax adjusted trading profits
Payment of class 2 contributions
- collected by HMRC through the self-assessment system
- payment due by 31 January following the end of tax year along with the balancing payment for income tax and class 4 NICs
- HMRC can collect unpaid class 2 NICs from individuals if they are also employed, by adjusting their PAYE tax code
Class 4 contributions are payable by self-employed individuals who:
- at the start of the tax year, are aged 16 or over
- continue pay till the end of the tax year in which they reach state pension age
- are not allowable deduction for the purposes of calculating the individual’s income tax liability
- are not a deductible expense when calculating the business’s tax adjusted trading profits
Profits for the purposes of class 4 NICs consists of:
- the tax adjusted trading profits of the individual that are subject to income tax after deducting trading losses
- profits are before deducting the individual’s personal allowance that is available for income tax purposes
Calculation of class 4 NICs
- 10.25% on profits between £12,571 and £50,270
- 3.25% on profits in excess of £50,270
When is due date for class 4 NICs?
- payable with income tax due under self assessment
What self-employed are due to pay regarding NICs?
- class 2 and class 4 NICs regarding of their trading profits
- if employ staff then class 1 employee, class 1 employer and class 1A NICs in respect of earnings and benefits provided to employees
