National Insurance Contributions Flashcards
How much NIC would an employee earning £1,000 per week, pay?
First £242 (up to PT) would be charged at 0%
Next £725 (UEL - PT) would be charged at 12% = £87
Final £33 (amount above UEL) would be charged at 2% = £0.66
Weekly NIC totals £87.66
What are Class 1 primary NICs paid on?
What are Class 1 secondary NICs paid on?
Earnings, but not income from savings and investments.
Earnings include a regular salary of an employee, bonus etc. and any P11D benefit which can easily be converted into cash.
Sick pay
Maternity pay
Incentive payments
Holiday pay
Payments to meet employee personal debt
Interest free loans
Class 1 secondary:
Employer does pay NIC on P11D benefits not easily convertible to cash, such as company cars.
these are charged to Class 1A - which is same flat rate as Class 1
Which income is used when working out the level of NIC to pay?
Total income, therefore the PA is not taken off and pension contributions made via relief at source and net pay arrangement, which lower a person’s taxable income, have no effect on reducing the amount of NIC to pay.
The only way to reduce the amount of NIC to pay is by reducing total income, which is achieved via the SS method.
What do we need to consider when calculating director’s NICs?
Directors are treated differently when dealing with NICs, because of the supposed control they have over the regularity of their income.
They are therefore deemed to have an ‘annual earnings period’, and their NIC liability is calculated by using the annual threshold.
What is the Employer Allowance
Works by allowing employers to deducted £5,000 (currently) from their total secondary Class 1 NIC contributions.
This allowance is not available to:
- Companies where a director is the sole employee
- business with an employer NI Bill of £100k or more in the last tax year.
For companies that qualify, their total Secondary Class 1 NICs must exceed £5,000 before they have anything to pay. Even then, only the excess over £5,000 is payable.
Considerations for employers regarding Under 21s or apprentices under 25?
For employees aged under 21 and / or any apprentices aged under 25, the employer pays no Secondary Class 1 NICs up to the UEL (£967 per week)
Above that figure, they would pay NICs at the main employer rate (so 13.8%), but when you consider the probable employee-profile it is unlikely they will be earning over this amount.
The employee/apprentice is still liable for paying their own NIC
What are Class 1A NICs, when are they payable and at what rate?
Fringe benefits are generally not taxable on employees, they are subject to employer’s NICs.
This includes regular benefits such as company cars and private medical insurance.
They are subject to Class 1A NICs, which was charged at the same flat rate of 13.8% that the employer is generally liable to class 1 NICs.
if paid voluntarily, what are class 2 NICs based on?
Net profits of an individuals business accounts, within the tax year.
Though class 2 NICs have bene abolished, when might someone wish to pay them?
When their profits are less than £6,725 per year as they will not be building a NIC record and thus entitlement to the SP.
What is the limit for NICs payable at the main rate for employees and directors?
53 x the maximum NICs at the main rate on a week’s earnings.
This equals: 53 x (£967 - £242) x 8% = £3,074
When would you aggregate multiple employments to ensure NICs are paid as if from a single employment?
Where there is a link between roles.
When are self-employed NICs payable?
Class 2 NICs annually on the 31st January following the end of the tax year in question, alongside their tax return for that year.
Class 4 NICs are payable on account and follow the same structure as payments on account for income tax.
If a person has earnings from employed and self-employed roles, and their self-employed work necessitates class 4 contributions, what is the maximum class 4 contributions payable at the main rate?
the maximum class 4 contributions at the main rate
less
the actual class 1 contributions at the main rate + the actual class 2 contributions
In practice, an individual who pays the maximum class 1 at the main rate will only pay class 4 at the 2% rate.
Fenella is employed as a manager of a construction company. Additionally, she provides consultancy to various firms on a self-employed basis.
Explain how the maximum limits for National Insurance contributions apply to Fenella.
- Fenella has earnings from employment and self-employment.
- So maximum limits on main rate NICs are set to prevent excess liability.
- Her Class 4 National Insurance contributions will be restricted.
- This limits self-employed profits charged at the main rate of 9%.
- Class 4 NICs are limited to the maximum Class 4 NICs at the UEL (£3,393) less the main rate Class 1 NICs paid.
When will an employer need to pay the Income Tax and NICs liability to HM Revenue & Customs.
- Tax and Class 1 NICs deducted through PAYE must be paid to HMRC by
- 22nd of the next tax month.
- If paying by cheque/not paying electronically;
- must reach HMRC by 19th
- Class 1A NICs on benefits is paid on 22nd July after end of the tax year.
