National insurance and further administrative matters Flashcards
NI contributions paid by
employees, their employers & self employed individuals
NI contributions used for
the government to pay state benefits and state pensions. Some state benefits will only be paid if a minimum contribution has been reached.
Class 1
Paid by employees and their employers.
Collected under PAYE system on a monthly basis.
16 - state pension age (65)
Employer pay class 1 secondary NICs
An employee’s earnings for this purpose include all earnings received in monetary form:
salary
commission
bonuses
vouchers exchangeable for readily convertible assets (cash, goods, services)
Class 1A NICS
Paid by employers
Payable by 19 July (or 22nd if paid electronically) following end of tax year to which they relate
Employers pay class 1A on taxable benefits provided to employees at the rate of 13.8%
The value of taxable benefits for NIC generally the same as the taxable value for income tax. However any benefits taxed as earnings under class 1 are not subject to class 1A.
Class 2 NICs
Paid by self employed individuals
Collected together with income tax under the self assessment system (but no payments on account)
Flat Rate Contributions - ages 16-65 - flat rate at £2.95 a week.
Small profits threshold - no contributions are payable if individual’s profits are below the small profits threshold (£6,025 for 2018/19)
Class 4 NICs
Paid by self employed individuals
Collected together with income tax under the self assessment system
ages 16 - 65
based on taxable trading profit
National insurance in a partnership
each partner is responsible for paying class 2 and class 4 contributions based on his own share of the profits
Maximum annual NIC contributions
As NICs are calculated separately on each source of earnings, an individual could pay an excessive amount of contributions, for example where an individual has the following:
- two or more employments (two sources of class 1) or
- an employment and is also self employed
In these circumstances there are anual maximum limits of NICs payable. Any overpayment will be repaid by HMRC.
The calculation of the annual maximum is not examinable.
Class 1B contributions
Employers are liable to pay class 1B contributions on the grossed up value of earnings in a PAYE settlement agreement at the rate of 13.8%.
A PAYE settlement agreement is one between an employer and HMRC where the employer pays income tax on small employee benefits and expense payments as one amount. This means that it is not necessary to keep separate records of such amounts or enter them on form P11D.
Payments on account
A taxpayer may be required to make payments on account on 31 Jan in the tax year and by 31 July following the end of the tax year.
Interest is payable on late paid POAs but no penalty.
The amount of each POA is generally half of the income tax and class 4 NICs paid under self assessment for the previous year.
POAs are not required wheret the amount of tax paid under self asssessment in the previous tax year was less than
-£1000
or
- 20% of the total income tax and class 4 liability
Reduction in POAs
A taxpayer may wish to reduce her POAs for example if there was an unusually large liability in the previous tax year which is not likely to be repeated in the currrent tax year or there is a change in his personal circumstances (eg retirement)
She may make a claim to reduce his POAs stating that he believes his liability will be:
- a stated amount which is less than the liability for the previous year or
- Nil
She must state grounds for the belief
Interest and penalties for incorrect reduction
If the actual liability is higher than estimate when making claim to reduce POAs interest is payable as well as a possible penalty.
Apprenticeship levy
From April 2017 an employer with an annual pay bill in excess of £3million must pay the apprenticeship levy.
Apprenticeship levy: Paying the levy
An employer must pay the levy monthly with PAYE via the EPS
The apprenticeship levy is 0.5% of the annual pay bill, calculated on a cumulative monthly basis (in a similar way to the calculation of income tax under PAYE)
Employers have an apprencticeship levy allowance of £15,000 for a tax year. This allowance reduces the amount of the levy payable over the year. It works in a similar way to a tax code. ie at the end of month one, the apprenticeship levy for the month is reduced by £1,250 (£15,000 divided by 12) then at the end of month 2, the cumulative apprenticeship levy for the two months to date is reduced by £2,5000 (£15,000 * 2/12)
Connected companies only have one £15,000 allowance. At the start of the tax year employers decide how to allocate the allowance between the companies.
Receiving levy funds
Levy paying employers can vreate an account with HMRC to receive levy funds to spend on apprenticeships, such as paying for exams and assessments and to pay training providers.
the funds cannot be sued to pay wages and other employment costs such as travel and subsistence costs.
Different rules apply to non-levy paying employers
