NICs Flashcards
How are company directors NICs dealt with?
Calculated using lower and upper limits for relevant earnings period
However may pay themselves irregular amounts at irregular times.
All company directors have an annual earnings period - must consider total earnings from start of tax year whenever other earnings are paid.
2022/23 annual primary threshold is £11,908
Uses class 4 thresholds in tax tables to remember (or income tax brt) but apply the 12% and 2%
Who doesn’t pay Class 4 NICs and why?
Under 16
Over state pension age
Don’t count towards state benefits
Earnings fall below lower profits limit
When are class 4 NICs charged?
On the tax year when profits are assessed for income tax.
The tax year the profits fall into
Accounting year to 31 May 2021 falls into 2021/2022 tax year
Can carry forward losses
How is a loss in profits dealt with for a self-employed person in terms of NICs?
Assessable in tax year, year end falls
Can carry forward losses from previous year to reduce the profits in the current year for NIC purposes
What is the difference for under 21s in terms of NICs?
Nothing for employee contributions
Employer’s get a nil rate band for earnings between £175 and £967
Only pay on earnings above £967
How are class 4 NIC dealt with when someone is both employed and self-employed?
Class 4 maximum is £50,270 - £11,908 @ 9.73% = £3,732.62
Minus any class one NIC
How is group income protection dealt with for the purpose of NIC
The premiums if paid by employer are free of NICs
Employer deducts NIC as usual before paying any benefits from the policy to the employee.
When are class 2 NICs paid?
All self employed liable for each week of the tax year they are self employed
If profits below lower profits limit no contributions due and are deemed to be paid if profits between small profits threshold and lower profits limit. Can elect to pay voluntarily to maintain entitlement to state pension and other benefits.
Shouldn’t volunteer to pay class 3 instead as a higher rate payable and no additional benefit to state benefits.
Paid under self-assessment with the full amount for a tax year due on the following 31 January (payments on account not required)
Qualification for state pension?
Will receive at 67/68
Get full amount of paid or been credited with 35 years worth of NICs
No state pension unless 10 years of credits/payments made
If had a career break won’t have received NIC unless claimed child benefit until youngest child was 12
Credit automatically added to NIC record
Credits can be made by making voluntary contributions/class 3
How is NI dealt with for a director employed at 2 jobs where combined exceeds threshold?
Can apply for deferment as maximum can pay at 12% is £37,700 x 12%
Salary deferral doesn’t apply to deduct £12,570 and multiply by 12%
Other job do the same but multiply by 2%
Add together gives NI payable
Then a balancing payment at end of year: what would pay of the maximum at 12% and the remaining at 2% (first deduct £12,570 from both salary’s and total.
Deduct the NI already paid from this max payment and the balance is paid at the end of the year.
