National Insurance Flashcards
What is national insurance
A compulsory contribution to the state social security system.
What affects how much national insurance you pay?
The amount you work and whether you are employed or self employed.
What are class one contributions?
Paid by both employers and employees.
96% of total contributions
What are class two and four contributions?
Contributions paid by self employed
What are class 3 and class 3a contributions?
Voluntary contributions
What is included as earned income for NI?
Wages
Salary
Bonuses
Maternity/paternity/adoption
Golden hello/handshake
Payments to cover employee liabilities
Money in like
Shares in unapproved incentive schemes
Who is potentially liable to class one NI?
Anyone between 16 and state pension age.
Employers still have to pay after the employee reaches pension age.
What rate has the NI between £242 and £967 changed to in Jan 2024?
From 12% to 10%
How is NI deducted for employees and employer?
Employee deducted before calculating income tax
Employer after calculating income tax
What is Class 1A NI?
NI for certain in kind benefits
How much is class 1A currently
13.8% of the value of benefit
What is the term low earnings rate for NI?
The minimum level of earnings needed for an employee to get contributory state benefits without paying paying any NIC
What is the low earnings limit for NI?
£6,396 or £123 per week
What is the term primary contribution threshold?
Employee NI is charged on earnings above this level.
What is the rate for the primary contribution threshold?
£242 per week or £12,570
What is the term upper earning limit for NI?
The maximum level of earnings employees have to pay NI at the main rate of 12 or 10%. 2% above this.
What is the upper earning level?
£50,270 pa
Or £967 pw
What is the term secondary threshold?
The level where employers are charged on employee NI
What are the ages for employees where the secondary threshold starts?
21 and 25 for apprentices
What is the secondary threshold amount?
£9100 pa
£175 pw
What is the secondary threshold rate?
13.8%
What is the term upper secondary threshold and the apprentice upper threshold?
The threshold that must be passed to pay NI on employee or apprentice earnings
What is the current level for the upper secondary threshold?
£50,270 pa
£967 pw
What is the maximum limit for employer NICs?
There is no maximum limit
How are company directors assessed for NI?
On their annual earnings period.
Every payment must consider total earnings from the start of the tax year.
How do directors reduce or eliminate NI?
By taking pay in dividends or having a spouse work in the business.
What is the employer allowance?
£5000
Where can the employer allowance not be used?
In a company where the durector is the only employee or where an employers NICs were over £100,000 the year before.
What instances can build up credit for NI even when none is paid?
Looking for work
Ill, disabled or on sick pay
Maternity, paternity adoption pay.
Caring for a child under 12
Jury service
Wrongly put in prison
Caring for someone sick or disabled
Married to a member of the armed forces serving overseas
What is considered employed for NI reasons?
Has a contract of service
Substantial control exerted by the employer.
Work done is an integral part of the business.
What additional groups might be considered employees for tax reasons?
Domestic workers and office cleaners
Agency workers
Lectures and instructors
What percentage of NI do class 2 and 4 make up?
3%
When do you need to register for self-assessment when self-employed?
5 October in your businesses 2nd year.
What are class 2 contributions?
Flat rate NICs for self-employed that go towards NI contributory benefits
How much profit per annum will require class 2 NICs to be paid?
£6,725
Profits aportioned between the tax year if falling outside this.
If earnings are expected to be less than the threshold for class 2 NICs, what can be done?
The self-employed individual can apply for exemption but will be required to provide proof unless in their first business year.
How much are class 2 NICs?
£3.45 per week
How much is the fine for failing to pay class 2 NICs
£100
When were class 2s abolished?
6th April 2024
What are class 4 NICs?
Earnings releated NICs based on profits chargeable to income tax after adjusting for certain capital allowances and trading losses brought forward.
What is not deducted from the profits on class 4 NICs?
Personal allowances and pension contributions.
What is the rates for class 4 NICs?
9% between £12,570 to £50,270
2% above this
How much is the main rate of NICs for class 4 after April 2024
8%
Who administers NI
The National Insurance Contributions Office (NICO) of the HMRC
Are excess NICs refundable?
No
How is class 1 NI usually collected?
Through the PAYE system.
Where are NIs usually shown?
In the employees’ RTI returns and their annual P60.
When are class 1A payments due?
19th July the following tax year from receiving the benefit in kind
22nd if made electronically
Where must class 1a contributions be recorded?
The employees P11D form
The employers P11D(b) form
When must the P11D forms be submitted to the HMRC?
By 6th July after the tax years end.
What is the penalty for late payments of employee NI?
1% starting rate.
5% for payments later than 6 months with an extra 5% charge for those not paid within 12 months
What is the penalty for class 1a late payments?
3 lots of 5%
30 days
6 months
12 months
When will a penalty be lived against class 2 NIs for not notifying?
31st January, the following tax year after the eligible person became eligible.
How are class 4 NICs paid?
They they included in the self-assessment and paid in two instalments.
31st Jan and 31st July after the tax year in question
When can self-employed people get credits for low pay?
They can’t but may be given in some circumstances such as during training periods.
When will individuals stop paying NI if working abroad?
After 52 weeks
How are NICs assessed for multiple jobs if the jobs are connected?
All the NICs are agrigated and classed as coming from one employer.
For employees with multiple jobs that are not agregated but exceed the upper earnings level. How many weeks can NIs be charged at this rate?
53, then drops to 2%
Must be applied for.
People employed and self-employed can apply, but it is complicated and not covered in the exam.
What are class 3 NIs
Voluntary contributions used to fill gaps in an individual’s contributions.
What are class 3a contributions
Voluntary contributions open for a limited time to allow those who reached state pension age before 6 April 2016 to top up their entitlement.
How are class 3s paid?
6 years from the year they relate to at the rate of the year paid.
Collected through direct debit or quarterly demand
Cannot be paid once reaching state pension age.
What is the current rate for class 3 NI?
£17.45
