National Insurance

Question 1

Explain the classes of NI, who pays them and how?

Answer 1

Class 1 Employees and Employers % via PAYE
Class 1a Employers Only % on BIK via P11D and P11D (b)
Class 2 Self Employed flat rate via Self Assessment
Class 3 Voluntary flat rate via a Monthly or Quarterly DDI
Class 4 Self Employed % Self Assessment

Question 2

During what ages are NI contributions paid for

(1) Employers
(2) Employees and Self Employed

Answer 2

(1) Age 16 until stop working

(2) 16 to SPA

Question 3

NI is paid on assets that can easily be converted into…. except ….

Answer 3

Cash / Approved Profit (Sharing, Option, Incentive plans)

Question 4

Which State Benefits are based on class 1 NI contributions?

Answer 4

(1) Contribution-based Jobseeker’s
(2) Contribution-based Employment and Support (ESA)
(3) Bereavement
(4) Maternity
(5) State Pension (35 years for full)

Question 5

What three types of payment are not liable to NI?

Answer 5

Redundancy
Compensation
Damages
Approved share schemes

Question 6

Which State Benefit does not qualify from class 2 NI contributions?

Answer 6

Contribution based Job Seekers

Question 8

Which State Benefit qualifies from class 3 NI contributions?

Answer 8

State Pension

Question 8

Which State Benefits qualifies from class 4 NI contributions?

Answer 8

None

Question 9

Can employers deduct NI from profit for tax purposes?

Answer 9

Yes

Question 10

What NI do employers have to pay for all employees under 21 or if they are under 25 and an apprentice?

Answer 10

Only pay on earnings above the Upper Secondary Threshold £962 (Same as UEL)

Question 11

What is the minimum level of earnings to qualify for contributory based benefits?

Answer 11

Lower Earnings Limit (LEL) £118

Question 12

On what rates and bands do employees pay class 1 NI?

Answer 12

12% (main rate) on earnings above the Primary Threshold £962 - £166
2% on earnings above the UEL of £962

Question 13

What rate or rates and band do employers pay class 1 NI

Answer 13

13.8% on £962 - £166

Question 14

Who pays class 1a and at what rate?

Answer 14

Employers only at 13.8%

Question 15

Employers are not required to pay NI on the first £3,000 of contributions, known as the employer allowance, name one situation that is not eligible and one that is?

Answer 15

Companies where the director is the sole employee can’t claim.
A individual employing a care or support worker can claim

Question 16

Class 1 is based on employee pay patterns I.e weekly/ monthly rather than the tax year except for …..

Answer 16

Directors who all have an annual pay period.
£50,000 - £8632 x 12%
£50,000 x 2%

Question 17

What is the EEA principle?

Answer 17

Only pay NI in one state although the rules are complex.

Question 18

Who is a Primary and who is a Secondary NI contributor

Answer 18

Primary      = Employees
Secondary = Employers

Question 19

How can shareholder directors avoid NI and what other impact does it have?

Answer 19

By receiving an income instead of dividends, although will reduce allowable pension contributions.

Question 20

The Anti Avoidance IR35 rules stop personal services companies working for one client claiming to be a separate company rather than an employee to pay dividends and avoid PAYE and NI (known as disguised employment). If IR35 applies what is the impact?

Answer 20

Must pay PAYE and NI

Question 21

Which occupations are treated as employees for NI?

Answer 21

Domestic workers
Office Cleaners
Agency workers
Lectures
Film and TV workers

Question 22

Who receives NI credits when not working?

Answer 22

Unemployed benefits
Approved training scheme
Jury service
Wrongly in prison
Men aged between the state pension age for women and 65
Caring for a child or someone sick or disabled

Question 23

If an employee has multiple employments all paying income below the primary threshold they could avoid paying NI altogether, how is this treated by HMRC?

Answer 23

They can aggregate where there is a clear link between employers known as associated earnings and treat as if they were one salary

Question 24

How do HMRC ensure someone with multiple occupations doesn’t over pay NI?

Answer 24

At the end of the year the total amount paid is compared to the maximum amount payable.

Question 25

Class 2 is a weekly contribution paid by the self employed when net profits are above the small profits threshold £6365 and ……. it is paid by …….

Answer 25

If voluntarily paid /31st January and 31st July

Question 26

Class 4 is a % of net profit before pension…

Answer 26

premiums and certain other deductions

*Trading losses can be carried forward and off set to reduce tax and NI

Question 27

Which self employed occupations have special rules for NI?

Answer 27

Share fishermen on a British Boat pay NI even if work outside UK
Sub Post Masters self employed for shop profits

Question 28

If high employed and self employed earnings in the same tax year?

Answer 28

They only have to pay the maximum on the main rate

Question 29

Class 3 voluntary to plug gaps for benefit entitlement, what are the four rules?

Answer 29

Can only be paid if you have insufficient class 1 or 2 in the year being paid for
Can only be paid 6 years after
Cannot be paid in the same year attaining state pension
Must meet residency requirements
Can pay when abroad if previously UK resident