National Insurance Contributions Flashcards
What are the state benefits that NI contributions go towards (9)
*Basic State pension ( before 6th April 2016)
Additional state pension
New state pension ( after 6th April 2016)
Contribution based job-seekers allowance
Contribution based employment and support allowance
Maternity allowance
Bereavement payment
Bereavement allowance
Widowed parents allowance
When is NI payable?
Between 16 and State pension age
What happens if an employee continues to work after state pension age?
They do not pay any NIcs but the employer will continue to pay secondary Nics
What happens if someone whom is self-employed continues to work after state pension age?
They will not pay class 2 NIcs but will have to pay class 4 NIcs on any profits of the business in the tax year that they reach state pension. There will be no further payments in the following tax year
Name all of the classes of contribution and who pays then?
Class 1 - paid by employers and employees based on earnings level
Class 1A - paid by employers on taxable benefits in kind provided to employees on the value of benefits
Class 2 - Paid by self employed at a flat rate
Class 3 - Voluntary NICs paid at a flat rate
Class 3 A - Paid by those that have reached state pension age by 6th April 2016. Can only pay til 5th April 2017 to add voluntary contributions to their pension
Class 4 - paid by self employed based on net profits
Give some examples of where an individual may not be working but will still receive NI credits towards their state pension? (11)`
- Parents receiving child benefit and caring for a child under 12
- Registered carers
- Claiming jobseekers allowance
- Disabled persons
- Carer’s allowance
- Those on income support and providing care
- Those on working tax credit
- Those on universal credit
- Those on approved training courses
- Men who are unemployed and between the state pension age for women ( traditionally 60 but now rising) and state pension age for men (Currently 65)
- People receiving statutory sick pay, maternity pay, maternity allowance, paternity pay and adoption pay
What happens with employees that earn between £112 per week and £155 per week?
They do not pay NI but receive credits towards their state pension
How is class 1 NICs paid?
These are usually collected through PAYE. The employer will pay NICs on employee salary and together with employee and employer NICs this is paid to HMRC ona monthly basis
What are primary and what are secondary contributions?
Employee are classed as primary and employer are secondary
Does an employer with an apprentice under 25 have to pay NICs?
No
Does an individual receive tax relief on their NI contributions?
No
Who pays NI contributions if the employer continues to work after state pension age?
The employee no longer has to pay but the employer will still continue to make contributions
Whose NICs are calculated annually and why?
Directors NICs are calculated annually as they may pay themselves low pay for many months and then a much larger pay in a selected month
When did the contracting out schemes stop?
From 2016/2017 it is no longer possible for a scheme to contract out
What is the LEL and its definition?
Lower earnings level and this is the minimum level of earnings needed by an employee to be entitled to certain social security benefits such as state pension
Currently £112 per week
What is the primary threshold?
If earnings are above the primary threshold then the employee will be liable for NICs. So if paid between £112 and £155 per week then they will build up entitlement but not be liable to pay NICS
What is the secondary threshold?
If earnings are above this then the employer is liable to pay NICs
What is the UEL?
Upper earnings limit - maximum level of earnings that the employee will be liable for NICs
What could married women do before 6th April 1977?
They could elect to pay lower NICs but this would reduce their right to certain social security benefits in particular pensions
What are class 1A contributions?
These are what an employer will pay on the benefits in kind that an employee will receive. The employer does not pay NICs on this but will pay income tax
What is employment allowance?
Business and charities that pay class 1 NICS can claim employment allowance which gives them a reduction in employer NICS of £3000 per annum All the duties of the workers have to be in relation to individuals that need care
What is the HMRC rule around associated employments?
HMRC will look if an individual has several jobs whether each of these jobs serve a common purpose and share accommodation, equipment, personnel etc.
If this is the case then they would be classed as associated and all the salaries would be combined.
This stops individuals from manipulating the free £155 per week no NICS.
What are class 2 contributions?
Paid by the self employed if annual earnings are above £5965
What is the small profit threshold?
This is where the self employed person does not have earnings for the year above £5965 and therefore is not liable to pay NICs
What state benefits do class 2 NICs give rise to? (3)
- State pension
- Maternity allowance
- Bereavement allowance
Can class 2 contributions be paid voluntary?
Yes - to maintain a contribution record
If someone is moving abroad they can continue to pay provided that they were employed or self employed before moving abroad
How can Class 2 contributions be paid?
By direct debit, monthly or 6 monthly (31st Jan and 31st July)
In response to a payment request from HMRC in October or April
What are class 4 contributions charged on?
On net profits ( profit after capital allowances and business expenses but before pension contributions)
Do class 4 NICS provide entitlement to state benefits?
No
When and how are class 4 NICS paid
With income tax and class 2 NICS by self assessment
What happens to someone that is both employed and self-employed? What NICS do they pay?
They pay class 1, 2 and 4. However it would be unfair for them to pay the main rates on class 1 and 4 so HMCR will allow a deduction in class 4 where appropriate
What are class 3 contributions?
These are made in order to increase entitlement to state benefits but only when they have been insufficient class 1 or 2.
How long does an individual have to make up any shortfalls with they NIC records?
6 years from the end of the tax year from which the contributions are being paid It would be more cost effective to pay class 2 than 3 as these are paid at a flat rate
Can contributions be made up in the year that the individual reaches state pension age?
No
