PT25 class 1 NICs Flashcards
Earnings include the following:
- Cash payments (other than reimbursement of genuine business expenses).
- Payments in kind that can be surrendered for cash.
- Readily convertible assets.
- Settlement of employee’s personal liability.
- Vouchers (except childcare to the extent it does not exceed the exempt amounts)
how are class 1 NICs calculated for a director?
an annual earnings period must be used.
Class 1 NICs start at what age?
Until?
The contributions start at age 16 and stop at pensionable age which is currently 66.
Employer Class 1 NICs start at what age?
Until?
The contributions start at 16 but there is no upper age limit.
special rules for young people & army?
No employer contributions are paid on earnings between the secondary threshold and the upper secondary threshold for employees below the age of 21 and apprentices under the age of 25. For 2022/23 (and 2023/24), this also applies to the earnings of armed force veterans in the 12 month period starting with the first day of their first civilian employment
Who’s responsible for NICs?
The National Insurance Contributions Office (NICO) is part of HMRC and is responsible for the administration of NICs. The due dates, interest and penalty position essentially mirrors
that for PAYE.
What’s the annual maximum
The overall limit on total Class 1 NICs paid is calculated via an annual maximum test.
Where can I find that bloody annual maximum calculation?
Book 3 - it will be highlighted
What two things do I need to remember about the annual maximum calculation?
- the weekly rates are used
- there’s a special lower weekly rate for annual maxima purposes, it says it in the tax tables
Why are NICs calculated on an annual earnings period for directors?
To prevent manipulation
How does the annual earnings period for directors work?
Each time the director is paid, their total earnings to date in the tax year are compared to the annual primary threshold (£11,908) and the annual upper earnings limit (£50,270). In
other words, for directors the calculation of NICs is carried out on a cumulative basis.
Is there an alternative to calculating NICs on a cumulative basis for directors?
Where this would cause distortion in the amount of NICs paid each month, employers can calculate and deduct NICs on the basis of a monthly earnings period, but the overall liability for the year is calculated on an annual basis.
What if the director is first appointed in the year I’m calculating?
If the director is first appointed during the tax year, they have a pro-rata annual earnings period for the rest of the year.
What if the director resigns during the tax year?
If a director resigns during the tax year, the earnings period will not change.
Amounts placed in an account from which the director can draw funds or amounts left in the company but placed at the director’s disposal…
are treated as earnings for Class 1 NICs
purposes.
