NIC

Question 1

Who pays what NIC (class1/2/4)

Answer 1

Class 1: Primary by employee and Secondary by employers
Class 1 a/b: Employers

Class 2: Flat rate by self employed
Class 4: Self employed

Question 2

What is class 1 primary paid on

Answer 2

cash earning BEFORE deduction
o Gross pay (salary, bonus, commission) before deduction
o Vouchers
o Payments more than SMRS (stays at 45p and doesn’t drop to 25p)

Question 3

What is the effective rate of tax and give formula

Answer 3

Effective rate of tax: avg rate of tax paid (proprotion)
o Total tax paid (income + NIC) / total income

Question 4

Give 5 examples of what contributes to Class 1 Secondary

Answer 4

1 secondary on cash earning (beyond £9100 is 13.8%)
 Income (cash, near cash, bonus)
 Write off of loan
 Employee personal bills paid (i.e. landline paid)
 SMRS over 45p
 Profit of general allowance

Question 5

Give 5 benefits contributing to Class 1a

Answer 5

 Car, van, fuel
 Beneficial loan on interest
 Phone rental and private calls (employer takes it out in their name)
 Private medical insurance and salary sacrifice
 Relocation expenses more than £8000

Question 6

What is class 1b and how do you calculate?

Answer 6

o PAYE settlement agreement
o Employer agrees to pay income tax and NIC on benefit on employees behalf

(Amount + Income tax) * 13.8%

Income tax= (amount x 20/80 or 40/60)

Question 7

What is POA? Give details and who and at what amount

Answer 7

Self employed on class 4 and income tax (not class 2 or CGT)
o 31 Jan first POA. 31 Jul second POA. Next 31 Jan is final payment (balancing) and first POA
o Each POA is half of last years tax bill
o No POA required if tax paid in PY under self assessment is less than £1000 or 20% of total income tax and class 4

Question 8

What is the earnings period for employee/director for Class 1 NIC

Answer 8

Employee- If paid evenly then annual. If given bonus then monthly/weekly (if paid monthly/weekly)

Director- Always annual to avoid manipulation