Flashcards in Chapter 12 - NIC Deck (11):
What are the four main classes of NIC?
Class 1 - Primary paid by employees; Secondary Class 1, 1A and 1B paid by employer
Class 2 - Paid by self employed
Class 3 - Voluntary contributions (paid to maintain rights to state benefits)
Class 4 - Paid by self employed
Who is responsible for ensuring correct amounts of NIC are collected?
National Insurance Contributions Office which is part of HMRC. They examine employers records to ensure correct amounts collected.
What do Class 1 payments relate to?
Paid by both employee and employer and related to employee earnings. Employer contributions are deductible however employees contribution is not.
Non cash vouchers are subject to Class 1 NIC with exception of childcare vouchers and any other voucher that is income ta exempt.
What is meant by earnings?
Gross pay excluding any benefits which cannot be turned into cash. Also includes payments for use of employees own car on business over the standard mileage allowance.
An expense with business purpose if not treated as earnings.
What are the rates of Class 1 NICs?
Employee primary contribution is 12% between primary threshold of £8,060 and upper earnings limit of £43,000. They also pay an additional 2% on earnings above upper limit.
Where employee is 21 or over then secondary contributions of 13.8% on earnings at threshold of £8112. No upper limit.
If a person has more than one job then NIC is calculated for each job independently however there are annual max amounts of Class 1 NICs. If total exceeds this limit then a refund of excess can be claimed.
What is meant by earnings period?
An earnings period cannot be less than 7 days and this period relates to period to which earnings relate i.e. how often employee paid usually forms earnings period.
What is the employment allowance?
Enables an employer to reduce its total Class 1 secondary contributions by up to £3,000 per year max or employment allowance equal to contributions.
Some companies excluded from this allowance such as where the director is the only employee that company pays secondary contributions. Other examples are employers who employ personal, household or domestic work, public authorities.
What are Class 1A NICs?
Class 1 A NICs are payable by employers on benefits provided for employees. They are pay at rate of 13.8% for most taxable benefits. Tax exempt benefits are not subject to Class 1A NICs. There is no class 1A in respect of benefits already treated as earnings in Class 1.
How are Class 1 and 1A contributions collected?
Class 1 are collected under PAYE scheme.
Class 1A are collected annually in arrears and must be made by 22 July following end of tax year if electronically paid. IF paid by cheque then 19 July.
These contributions do not apply to dividends paid to directors and employees that are shareholders.
What are Class 2 contributions?
Payable by self employed at a flat rate of £2.80 per week. No Class 2 contributions are payable if taxable trading profit is below the small profit threshold of £5,965.
Payable under self assessment system.