National Insurance Contributions

Question 1

What are the factors that determine NICs?

Answer 1

• Employment status
• Age
• Level of earnings
• Residence status

Question 2

Class 1 - Employees and Employers

Key Points:

Answer 2

• Paid on earnings: regular wages and salary, bonus, maternity/ sick pay paid by employer.
• Share options:
  
  • NICs are paid on shares that can be converted into cash acquired under unapproved share option schemes.
  • Shares acquired under approved arrangements are NIC free
• NICs are not deducted from pay before calculating income tax.
• Employer contributions are deducted from profits for tax purposes.
• Employee NICs only payable to SRA.
• NICs based on pay periods e.g. weekly, monthly and not tax-year.

Question 3

NIC 1 - Contribution thresholds:

Answer 3

• PCT
  
  • From 6 April to 5 July 2022 - £190 (£9,880)
  • From 6 July 2022 to 5 April 2023 - £242 (£12,570)
  • Annual equivalent in 2022/23 for the PCT is £11,908
• Secondary contribution threshold - £175 - employers pay C1 above this level. (£9,100 annual equivalent).
• LEL - £123 - minimum earnings for employee to be entitled to social security benefits. (£6,396 annual equivalent).
• UEL - £967 - maximum level of NICs on which employee pays NIC at main rate. (£50,270 annual equivalent)
• Secondary thresholds (UST, AUST, VUST). These are the upper limits for the 0% rate of:
  
  • Employers’ contributions in respect of employees aged under 21
  • Apprentices aged under 25
  • Armed Forces veterans in the first year of their civilian employment. Having

Question 4

Rates of Class 1 NICs:

Answer 4

• Employee
  
  • Below £190 pw = £0
  • Below £242 pw = £0
  • £242 - £967 pw = 13.25%
  • Above £967 pw = 3.25% (additional primary %)
• Employer
  
  • below £175 pw = £0
  • Over £175 pw = 15.05% (no ceiling)

Question 5

NICs - Married women & overseas employment:

Answer 5

• Married Women
  
  • Pre-6 April 1977 married women could pay reduced NICs (7.1% instead of 13.25%).
  • Pay 3.25% above £967
  • Elections are still in force, but anulled on divorce/ remarriage/ 2 consecutive TYs with earnings below LEL.
  • Reduced rate leads to reduced benefits.
• Overseas Employment
  
  • Members of EEA only pay towards SS benefits in one state - usually where they work rather than live.
  • Outside EEA, NICO will collect NICs from employees who work regularly in the UK once they have been res for 52 weeks.
  • NICO continues to collect NICs for 52 weeks for those leaving the UK to work abroad for UK employers.

Question 6

NIC Credits - key points:

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

Self-employed - Class 2 & 4 - key points:

Answer 7

• Class 2
  
  • 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 the tax year are net profits shown in accounts.
  • No credit if self-employed earnings are too low.
• Class 4
  
  • Does not give any entitlement to State benefits
  • Earnings related - profits chargeable to income tax, after adjusting for capital allowances and trading losses brought forward etc

Question 8

Class 2 and 4 NIC rates:

Answer 8

• Class 2
  
  • Weekly flat rate £3.15
  • Max annual payable £163.80
• Class 4
  
  • Main rate - 10.25%
  • Lower annual limit £11,908
  • Upper annual limit £50,270
  • Additional rate on earnings abov euppe rlimit - 3.25%

Question 9

Collecting NIC contributions for the self-employed - key points:

Answer 9

• Class 2 included in SA, no payments on account, due on 31 Jan
• Class 4 included in SA:
  
  • 31 January (payment on account)
  • 31 July (2nd payment on account)
  • 31st January (balancing payment)

Question 10

Voluntary NI contributions - Class 3 - key points:

Answer 10

• 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.
• Payment of Class 3s subject to residence condition:
  
  • be resident in UK in tax year concerned
  • have arrived during the tax year and be liable to pay class 1 or 2 NICs
  • have arrived in tax year and been resident for 26 weeks

Question 11

State Pension - Key Points:

Answer 11

• Forecast can be obtained online/ use form BR19 to find out how many qualifying years have been recorded.
• Can be deferred - gain 1% for every 9 weeks of deferral (5.8%) a year), no lump sum.
• Can be paid outside of UK, but increases only paid to those living in EEA/ countries with a reciprocal agreement. (Not Aus, NZ, SA or Canada).
• Minimum of 10 years NICs needed for payment, 35 years for maximum payment.

Question 12

Bereavement support payment (BSP) - key points:

Answer 12

• For those eligible for child benefit - £3,500 one-off lump sum payable to surviving spouse/ civil partner of someone who has died, followed by up to 18 monthly payments of £350.
• Otherwise, £2,500 one-off lump sum payable to surviving spouse/ civil partner, followed by up to 18 monthly payments of £100.

Question 13

Is child benefit taxable?

Answer 13

No, it is paid tax-free.

Question 14

Is the carer’s allowance taxable?

Answer 14

Yes, it is

Question 15

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

Answer 15

• 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.