National Insurance and Admin Flashcards
Types of national insurance contribution
Class 1
Class 1A
Class 1B
Class 2
Class 4
Class 1 Primary NIC threshold
Paid by employees on their earnings
Collected under PAYE system on a monthly basis
Up to the Primary threshold = £12,570 (0%)
Upper Earnings Limit = £50,270 (12%)
Above Upper Earnings Limit = 2%
Class 1 Secondary NIC threshold
Paid by employers on the earnings of their employees
Collected under PAYE system on a monthly basis
Up to the Secondary threshold = £9,100 (0%)
Above the Secondary threshold = 13.8%
(ST increases to £50,270 for employees under 21 and apprentices under 25)
Class 1 Secondary NIC threshold Employment allowance
Reduces the total secondary class 1 NICs of most employers by £5k per tax year
Not available to companies with 1 director and no other employees / companies with > £100k of Class 1 Secondary liabilities in the prior year
Class 1A
Paid by employees on taxable benefits at 13.8%
Value of taxable benefits for NICs = taxable value for income tax
Benefits taxed as earnings under Class 1 not also subject to Class 1A charge
Payable by 19 July following the end of the tax year (22 July if paid electronically)
Class 1B
Paid by employers on the grossed up value of earnings in a PAYE settlement agreement
Payable by 19 October following the end of the tax year (22 October if paid electronically)
Class 2
Paid by self-employed individuals
Payment due by 31 January after the tax year
£3.45 a week
From 16th birthday until state pension age
No contributions payable if the individual’s taxable trading profits are below £12,570
Class 4
Paid by self-employed individuals based on taxable trading income
Collected via self-assessment with
- payments on account
- final balancing payment
Up to £12,570 = 0%
Between £12,570 - £50,270 = 9%
Above £50,270 = 2%
Loss carried forward against future Class 4 trade profits if the trader makes a loss relief claim against their general income
Net disposable income for an employee steps
Record cash received
Deduct cash payments
Calculate and deduct income tax payable
Calculate and deduct Class 1 Primary NICS
Situations where an individual could pay an excessive amount of contributions
Two or more employments (2 x C1)
An employment is also self-employed (C1, 2, 4)
Any payment above annual maximum limit repaid by HMRC
Class 1B contributions
Employers liable to pay Class 1B contributions on the grossed-up value of earnings in a PAYE settlement agreement (employer pays the income tax on employee benefits) at 13.8%
Value of benefit grossed up by (100 / (100 - employees % marginal rate of income tax)
Payments on account
Required when income tax and Class 4 NIC for the previous tax year exceeded the income tax and Class 4 NIC deduced at source
Excess = relevant amount
Each payment on account = 50% of the relevant amount for the previous year
Not required if relevant amount last year was below £1k / over 80% of last year’s tax was paid at source
Payments on account due date
1st - 31 January in tax year
2nd - 31 July after tax year
3rd - 31 January after tax year
Reduction in payments on account
Claim can be made if a taxpayer believes their liability will be less than the previous year / nil
Penalties for incorrect reduction of payments on account
Applied if the claim to reduce payments on account was fraudulent
Maximum penalty = original PoA - reduced PoA
