National Insurance Contributions Flashcards
What is National Insurance Contributions (NICs)?
Contributions used to pay state benefits (pensions and job seeking allowances).
How are NICs paid?
Administrated by National Insurance Contributions Office (NICO).
Broken down into:
1) Class 1 (primary & secondary)
2) Class 1A (payable by employers on benefits)
3) Class 2
4) Class 4
What are Class 1 NICs?
Collected under PAYE system, monthly basis.
All monetary earnings during earning period, no taxable benefits.
Class 1 primary or Secondary NICs.
What are Class 1Primary NICs?
Payable by employees 16yrs to “state retirement age”.
* After £0 - no NICs
* After Lower Earning Limit (LEL), £6,396pa - no NICs, but can collect benefits.
* After Primary Threshold (TP), £12,570pa - 12% NICs
* After Upper Earning Limit (UEL) £50,270pa - 2% NICs.
What are Secondary Class 1 Contributions?
Payable by employers for employees >= 21yrs, no upper age limit.
Secondary Threshold (ST) = £9,100pa. After this, NICs o 13.8%.
Employee 16-21, or U25 apprentice, no Secondary Ni, unless they earn >£967pw.
What is the Employment Allowance for Small Businesses?
Total Secondary Class 1 NICs reduced by £5,000 (or total Class 1 NICs if <£5,000), allowance per employer.
Not available for companies with single director and no other employees.
Small Business = Secondary Class 1 NICs < £100,000 in previous tax year.
What is a Class 1A Contribution?
Payable by employers on taxable benefits provided to employees (cars, gift of assets, etc…).
13.8% rate with no limits. Benefits taxed as earnings under Class 1, not subject to Class 1A charge.
What are class 2 NICs?
Paid by self-employed individuals based on taxable trading profits.
16+yrs until “state retirement age”.
Pay only if profit +£12,570, £3.45 pw.
What are Class 4 NICs?
Paid by self-employed, 16yrs to “state retirement age”.
* After £0, no NICs
* After Lower Profit Limit (LPL), £12,570 - 9% NICs
* After Upper Profit Limit (UPL), £50,270 - 2% NICs.
Why Must you Register to Pay Self-Employed NICs?
Done for income tax & NICs.
Register in time for a return to be issued for completion, submission and payment of liability by 31/01 of following tax yr during start of self-employment, else penalties.
How do NICs work in Partnerships?
Each partner responsible to pay Class 4 contributions based on own share of profits.
