National Insurance Contributions

Question 1

Abbreviation Quick Fire

PCT

LEL

UEL

NICs

Answer 1

Primary Contribution Threshold (PCT)

Lower Earnings Level (LEL)

Upper Earnings Level (UEL)

National Insurance Contributions (NICs)

Question 2

What are the factors that determine NICs?

(Quick Fire x4)

Answer 2

Employment status

Age

Level of earnings

Residence status

Question 3

What is Class 1 NICs paid on?

Answer 3

Regular wages and salary, bonus, maternity / sick pay paid by employer.

Question 4

What are the Class 1 NICs Thresholds?

(Quick Fire x3)

Answer 4

• PCT - £242 - employees pay class 1 above this level.
• LEL - £123 - minimum earnings for employee to be entitled to social security benefits.
• UEL - £967 - maximum level of NICs on which employee pays NIC at main rate.

Quirk - For employees under 21 and recognised apprentices under 25 the employer rate is only paid on income above the Upper Earnings Level

July 2022/23 onwards.

Question 5

What are the Class 1 NICs Thresholds & Rates?

Answer 5

• Employee
  
  • Below PA (£242 pw / £1,048 pm / £12,570 pa) = 0%
  • ^ up to BA (£967 pw / £4,189 pm / £50,270 pa) = 13.25%
  • ^ Anything above = 3.25%
• Employer
  
  • Below PA (£242 pw / £1,048 pm / £12,570 pa) = 0%
  • ^ Anything above = 15.05%

(Note utilising the July 2022/23 Figures - Always rely on the Tax Tables in the AF1 Exam).

Question 6

When do you receive NIC Credits?

(Quick Fire x4)

Answer 6

• NIC record credited as if minimum contributions have been made when:
  
  • Unemployed and claiming certain benefits
  • On approved training course
  • income below PCT but above LEL
  • When entitled to certain types of statutory pay

Question 7

What are Class 2 NICs?

Answer 7

• Gives entitlement to contributory state benefits
• Flat rate - not earnings related
• If earning below £6,725 (2022/23) can choose not to pay
• Earnings for tax-year are net profits shown in accounts.
• No credit if self employed earnings are too low.

Question 8

What are Class 4 NICs?

Answer 8

• Does not give any entitlement to State benefits
• Earnings related
• Charged for tax year on profits assessed for income tax for that year
• Loss from previous year can be brought forward to reduce Class 4 payable.

Question 9

What are Class 2 NICs Rates?

Answer 9

Weekly flat rate £3.15

Utilising the July 2022/23 Tax Rates (ALWAYS RELY ON THE TAX TABLES IN SAID EXAM!)

Question 10

What are Class 4 NICs Rates?

Answer 10

Self Employed NI - Main rate - 10.25%

Anything above - 3.25%

Utilising the July 2022/23 Tax Rates (ALWAYS RELY ON THE TAX TABLES IN SAID EXAM!)

Question 11

How are Class 2 and 4 NICs Collected?

Answer 11

Via Self-Assessment.

Question 12

What are Class 3 NICs?

Answer 12

• Flat rate weekly amount for UK residents who have paid insufficient Class 1 or 2 contributions during a tax year.
• Cannot be paid in the same year as which SPA is reached or after SPA.
• Can pay contributions going back 6 years - this will be at current rate, rather than the rate at the time.

Currently £15.85 per week (2022/23).

Question 13

Minimum and Maximise State Pension Years?

Answer 13

Minimum of 10 years NICs needed for payment, 35 years for maximum payment.

Question 14

What is Bereavement support payment (BSP)?

Answer 14

Eligible to Child Tax = £3,500 one-off lump sum + up to 18 monthly payments of £350.

Otherwise £2,500 one-off lump sum+ up to 18 monthly payments of £100.

Question 15

Is child benefit taxable?

Answer 15

No, it is paid tax-free.

Question 16

Is carer’s allowance taxable?

Answer 16

Yes, it is

Question 17

Who is bereavement support payment paid to, and for how long?

(Quick Fire x3)

Answer 17

Paid to - spouse / civil partner of someone who has died.

Paid for 18 months

Claim within 3 months to obtain the full 18 months payments.

Question 18

How does the NI Threshold apply per directorship?

Answer 18

If it’s completely separate it gets its own threshold allowance.