12. TC - NI and further admin matters

Question 1

Who pays Class 1 Primary NICs?

Answer 1

E’ees aged between 16 - state retirement age

Question 2

What are Class 1 NICs paid on?

Answer 2

Cash earnings including

• Gross pay (e.g. salary, bonus, commission etc) before any allowable deductions
• Payments in excess of SMRS. For NICs the mileage allowance of 44ppm only and payments below that limit are not allowable deductions

Question 3

When can an individual end up paying too much NIC?

Answer 3

If they have 2 employments - both self employed and employed

An overpayment will then be repaid by HMRC

Question 4

What is the earnings period for calculating Class 1 NICs?

Answer 4

Normally calculated by reference to an e’ees earnings period
i.e.
if paid weekly, calc contributions on a weekly basis
if paid monthly, calculate contributions on a monthly basis

Question 5

When are annual limits for NIC used for the earnings period?

Answer 5

Annual limits should be used if

• Earnings accrued evenly over the year
• The individual is a director
• Exam Q requires you to compare annual positions in tax planning scenario (e.g. e’ee vs self employed)

Question 6

How are NICs for directors dealt with?

Answer 6

Regardless of when the director is paid, their earnings period is the tax year
Annuals earnings period applies to the whole TY, even if the indiv ceases to be a director during the year

Question 7

How is the annual earnings period adjusted for directors who cease to be a director during the year?

Answer 7

It doesn’t

Still apply the annual earnings period to the whole tax year

Question 8

What are the rates for Class 1 Primary NICs?

Answer 8

0% 0 - primary threshold
12% between primary - upper
2% above upper earnings limit

Question 9

What are the primary and upper earnings limit thresholds ?
Weekly
Monthly
Annual

Answer 9

PT:
Weekly £166
Monthly £719
Annual £8,632

UEL
Weekly £962
Monthly £4,167
Annual £50,000

Question 10

TYU1: Joey is paid £3,500 monthly
In Aug 2019, she is also paid a bonus of £1,000

Calc the class 1 primary liability for he TY 19/20 assuming

a. she is an e’ee
b. she is a director

Answer 10

a. E’ee Joey will pay Class 1 NICs as follows
11 months: cash earnings = £2.5k
(£3.5k - £719) x 12% = £334 x 11 = £3,671
August: cash earnings = £3.5k + £1k = £4.5k
(£4,167 - £719) x 12% = £414
(£4,500 - £4,167) x 2% = £7

Total of all = £4,092

Director:
Annual basis used
Annual earnings = £3.5k x 12 + £1k = £43k
Annual: (£43k - £8,632) x 12% = £4,124

Question 11

What are Class 1 secondary NICs due on?

Answer 11

Same as Class 1 primary NIC

Cash earnings including

• Gross pay (e.g. salary, bonus, commission etc) before any allowable deductions
• Payments in excess of SMRS. For NICs the mileage allowance of 44ppm only and payments below that limit are not allowable deductions

Question 12

What are the rates of class 1 secondary NICs for e’era of e’es over 21 and apprentices over 25

Answer 12

0% below secondary threshold

13.8% above secondary threshold

Question 13

What are the thresholds for Class 1 secondary contributions for normal workers

Answer 13

Secondary threshold (0% below, 13.8% above)
Weekly - £166
Monthly £719
Annual £8,632

Question 14

What is the thresholds for Class 1 secondary contributions for e’ers for e’ees under the age of 21

Answer 14

Upper secondary threshold
Weekly - £962
Monthly £4,167
Annual £50,000

Question 15

What is the thresholds for Class 1 secondary contributions for e’ers for e’ees who are apprentices and under the age of 25

Answer 15

Upper secondary threshold
Weekly - £962
Monthly £4,167
Annual £50,000

Question 16

TYU2: Camilla is paid £4,785 monthly by her e’er Data Ltd
Calc the class 1 secondary NICs payable by Data Ltd in relation to Camilla if
a. Camilla is 30
b. Camilla is 20
Ignore the e’ment allowance

Answer 16

Annual salary - £4,785 x 12 = £57,420

a. Aged 30
(£57,420 - £8,632) x 13.8% = £6,733

b. Aged 20
(£57,420 - £50,000) x 13.8% = £1,024

Question 17

How does the employment allowance work?

Answer 17

Reduces total class 1 secondary NICs of most e’ers by £3k per year
Allowance per e’er (NOT e’ee)
Not available to companies with a single director and no other e’ees

Question 18

When is the employment allowance not available?

Answer 18

Not available to companies with a single director and no other e’ees

Question 19

When is the employment allowance not available?

Answer 19

Not available to companies with a single director and no other e’ees

Question 20

What are the percentages due on Class 1A NICs?

Answer 20

13.8% flat rate for class 1a

Question 21

Give an example of some earnings and benefits that are subject to Class 1 primary and secondary ?

Answer 21

• Bonus, salary, vouchers and payments readily convertible into cash e.g. gold bars
• Write off of a beneficial loan
• Childcare vouchers in excess of £55/weem for BRTP, £28 for HRTP and £25 for ARTP
• SMRS payments over 45ppm [no deduction if less than 45p received]
• Profit element of a round sum allowance

Question 22

Give some examples of earnings and benefits that are subject to Class 1a

Answer 22

• Car van and fuel benefits
• Beneficial loan interest
• Directly contracted childcare in excess of £55/week for BRTP, £28 for HRTP and £25 for ARTP
• Pvte medical insurance and taxable benefits under the salary sacrifice scheme

Question 23

How do you generally distinguish whether earnings and benefits will be subject to Class 1A or Class 1 primary and secondary?

Answer 23

Class 1 primary and secondary = cash earnings

Class 2 = non cash earnings

Question 24

What is a PAYE settlement agreement (PSA) ?

Answer 24

Can be used by an e’er to settle any PAYE and NICs due to HMRC o certain expenses or benefits in relation to an e’ee

Question 25

What is the impact of a Class 1B contribution for e'ee and e'er?

Answer 25

``` - no entries are required on e'ees P11D form (and therefore e'ee not taxed on benefits or pay class 1 primary NICs in relation to cash benefits) No class 1a payable by ever ```

Question 26

What does the e'er pay for Class 1 B contributions?

Answer 26

- Income tax that would've been due by e'ee on an equivalent of exp/benefit, grossed up by the marginal rate of tax paid by that e'ee - Class 1B NICs on the grossed up value of these expenses/benefits

Question 27

What is the rate payable for Class 1B NICs and what is it payable on?

Answer 27

Payable by e'ers on grossed up value of earnings in a PSA at a flat rate of 13.8%

Question 28

What are the fractions used for grossing up for Class 1B contribution calcs?

Answer 28

100/80 for basic rate 100/60 for higher rate 100/55 for additional rate

Question 29

What is the apprenticeship levy?

Answer 29

Charge on large UK e'ers to fund new apprenticeships | Levy applies to e'ers with an annual pay bill of over £3m

Question 30

Who does the apprenticeship levy apply to?

Answer 30

Levy applies to e'ers with an annual pay bill of over £3m

Question 31

Who does the apprenticeship levy apply to?

Answer 31

Levy applies to e'ers with an annual pay bill of over £3m

Question 32

How much is the apprenticeship levy?

Answer 32

0.5% of the pay bill | Reduced by the annual allowance of £15,000

Question 33

How can e'ers use the apprenticeship levy?

Answer 33

Levy paying e'ers can create an account with HMRC to receive levy funds to spend on apprenticeships (e.g. to pay for Kaplan courses/ ICAEW exams) - Fund can't be used to pay wages/ other employment costs such as travel/subsistence

Question 34

Do self employed or employed indivs pay Class 1 NICs?

Answer 34

Employed

Question 35

Do self employed or employed indivs pay Class 2 NICs?

Answer 35

Self-Employed

Question 36

Do self employed or employed indivs pay Class 4 NICs?

Answer 36

Self-Employed

Question 37

What are Class 2 NICs?

Answer 37

Payable at £3/week if a traders taxable trading income is over the small profits threshold £6,365

Question 38

What are Class 4 NICs?

Answer 38

Payable at 9% on taxable trading income (calculated using accruals or cash basis) between £8,632 and £50,000 then 2% thereafter

Question 39

TYU4: Tim is self employed and has taxable trading income of £57,600 for y/e 30 Sept 19 For the y/e 30 Sept 2020, he anticipates taxable trading income of £64,750 Calc the class 2 and class 4 NICs payable by tim for ty 19/20

Answer 39

Class 2 = 52 x £3 = £156 Note: taxable trading income exceeds small profits threshold therefore Class 2 NIC is due Class 4 contributions £50k - £8,632 x 9% = £3,723 £57.6k - £50k x 2% = £152 = £3,875 Tax year 19/20 Basis period = y/e 30 Sept 19 (CYB) taxable trading income = £57.6k

Question 40

How are NICs dealt with for sole traders as e'ers?

Answer 40

E'ers can deduct their Class 1, Class 1A and Class 1B contributions from trading profits For ST, this will reduce the amount of income tax and Class 4 NIC payable on their profits

Question 41

What are the due dates for payments on account by the self-employed?

Answer 41

First POA = 31 Jan in tax year Second POA = 31 july following end of TY Balancing payment due by 31 January following the end of the TY

Question 42

What are self-employed POA based on?

Answer 42

Calculated based on 50% of the prev year's tax payable by self assessment

Question 43

When are POA not required for self-employed individuals?

Answer 43

Not available if amount of tax paid in previous TY under SA was less than £1,000 20% of total taxable liability

Question 44

When do you have POA for capital gains tax?

Answer 44

NEVER

Question 45

When do you have POA for Class 2 NIC

Answer 45

NEVER

Question 46

When do you have POA for self-employed indivs

Answer 46

If tax paid in prev TY was over £1,000 20% of total taxable liability

Question 47

What does the balancing payment cover

Answer 47

- Unpaid income tax - Unpaid self employed NICs - Capital gains tax

Question 48

When can indivs reduce their POA?

Answer 48

If an indiv believes their tax liability will be lower than in the prev TY, they can make a claim to reduce their POA

Question 49

When may a penalty be charged for reducing POA?

Answer 49

If the claim has been made negligently or fraudulently

Question 50

What is the interest charged on when the actual liability is higher than the estimate of POA when an indiv has opted to reduce it?

Answer 50

Interest is charged on the difference between the POAs actually paid and the lower of: - reduced POA + 50% of the balancing payment - Amount which would have been payable had no claim for reduction been made

Question 51

When does interest run from that is charged on over reductions of POA?

Answer 51

- Runs from the original POA due date and the date of payment of the balance of POA (exclusive)