National Insurance Contributions Flashcards
The 2 NI types: Self employed individuals
(Sole traders and partners)
Class 2
Class 4
Class 2/4 NI: Who pays:
Sole traders and partners
Aged 16-65
Class 2 NI: Paid on what
Profit for tax year
If over small profits threshold
Class 4 NI: Paid on what
Tax adjusted trading profits
That are assessed for income tax
Class 2 NI: Calculations
Flat rate of £3.05 p/w
Class 2 NI: Annual small profits threshold
£6,515
Class 4 NI: Calculations
Profits between:
9,658
50,270
=
9%
Profits thereafter:
2%
Class 2 NI: Due date
Via self-assessment system
(I.e. by 31 Jan after end of tax year)
Class 4 NI: Due date
Via payment on account/balancing payment
With income tax
When should a trader register with HMRC for NIC (and IT)?
Before:
31 Jan
After end of tax year
In which trade commences
Calculating NI: Rounding system
Round to nearest point
At each stage of workings
POA
Payments on account
POA use
Self employed need to make POAs
For:
IT
and
Class 4 NI
(Never class 2 NI)
2 types of POA due dates
- First POA
- Second POA
POA due date: First POA
31 Jan
In tax year
POA due date: Second POA
31 Jul
After
End of tax year
What is each POA calculated based on
50% of
Previous year’s
Tax payable by self assessment
E.g. POA for 21/22 is based on 20/21 tax year
When are no POAs required
Amount of tax paid in prev tax year under self-assessment
Less than:
£1,000
Or
Less than 20% of
Total income tax and class 4 NI liability
NI balancing payment due date
31 Jan
After end of tax year
NI balancing payment: For:
- Unpaid income tax
- Unpaid self-employed NICs
- CGT
NI: Late payment penalty applies to:
Balancing payments
(Not POAs)
(In TTS)
Is late payment interest also payable for late tax and penalties (NI)?
Yes
NI: Late payment interest: Date
Runs from:
Due date
To
Date payment made
(The period between those dates)
Class 1 Primary NI: Who pays
Employees
16-65 y.o.
Class 1 Secondary NI: Who pays
Employers
Aged 16 onwards
Class 1 NI: Primary and Secondary: Paid on what
Cash earnings
(Before deductions)
Plus vouchers exchangeable for cash, goods or services
Class 1 Primary and Secondary NI: Calculation: When?
Each time the employee is paid
Class 1 Primary NI: Calculation rates
0%
On earnings up to:
£184 p/w
(797p.m.)
12%
On earnings between:
£184 and £967 p/w
(797 and 4,189 p.m.)
2%
Thereafter
Class 1 secondary NI: Calculation rates
0%
On earnings up to:
£170 p.w. (737 p.m.)
13.8%
On earnings over this
Class 1 primary and secondary NI: Due date
By 19th
Of each month
Class 1 primary and secondary NI: How is it paid?
PAYE
Class 1 primary and secondary NI: Payment method: Employers with 250+ employees
Electronically
Class 1 primary and secondary NI: Payment method: Employers with less than 250 employees
Can choose
Electronically or written
Class 1 primary and secondary NI: Payment method: Average monthly total PAYE (IT + NICs) is £1,500 or less
Can pay quarterly
Calculating class 1 primary NIC if employee paid evenly throughout the tax year
Acceptable to use annual limits
Class 1 primary NIC ANNUAL limits
12%
£9,568 to
£50,270
2%
Thereafter
Class 1 primary and secondary NI: Payment method: If one week/month an employee receives an additional payment
E.g. bonus
Must calculate NICs weekly/monthly
Class 1 secondary NIC: For:
Employees under 21
Apprentices under 25
0%
On earnings up to:
£967 p.w. (4,189 p.m.)
12.8%
Thereafter
(Assume not unless told otherwise)
Calculating total class 1 secondary NIC payable for the tax year in relation to a particular employee: When it is acceptable to use annual limits
Always
Whether or not an employee is paid evenly throughout the tax year
Class 1 secondary NI: ANNUAL limits
13,8%
On earnings above
£50,270 p.a. (Lower rate)
£8,840 p.a. (Higher rate)
Class 1 secondary NI: Employment allowance
£4,000 p.a.
Per employER
What happens if the employer’s NI Class 1 secondary liability is less than the employment allowance
No NI secondary class 1 paid
Class 1 secondary NI: Employment allowance: Not available for:
- Companies
With a single director
And no other employees - Individuals
With a class 1 secondary NI liability
At or over
£100,000
In the previous tax year
In the exam: When to include NI class 1 secondary employment allowance
Always
UNLESS
Told otherwise
Or
Not available
Class 1A NI: Paid by
Employers (only)
Class 1A NI: Paid on what?
The value of
Assessable benefits
Excluding vouchers exchangeable for cash, goods or services (As liable for class 1)
Class 1A NI: Calculation
13.8%
X
Value of assessable benefit
(Calculated same was as IT)
Can the employment allowance be offset against class 1A NIC?
No
Class 1A NI: Paid how regularly?
Annually
Class 1A NI: Deadline: Not paid electronically
Not in tax tables
By 19 July
Following end of tax year
Class 1A NI: Deadline: Paid electronically
Not in tax tables
By 22 July
Following end of tax year
