National Insurance Flashcards
What is class 1 NI, who pays it, and at what rate?
Paid by anyone on PAYE - paid by both employees and employers
Includes - maternity leave - employer will pay, lump sums on joining org, payment to cover bills, unapproved share incentives…
All employees between 16 and state pension age will have to pay NI. After state pension age only employer pays.
NOTE: employee NI is deducted after tax calculation. Employer NI is deducted before tax calculation
Earning limits:
Lower earning limit: the minimum level of earning an employee needs to earn before paying any NIC whilst getting benefits - 123 per week or 6,396 per year
Primary contribution threshold:
Employee NI is charged in earnings above this level - 242 per week it 12,570 per year at a rate of 12%
The upper earnings limit:
Max level if earning that employee pays NI anything above 50270 it 967 per week NI is due at 2% above this
EMPLYER NI
Secondary threshold - employer NI is charged on employee earnings above 9100 per annum or 175 per week at 13.8% - must be over 21 and 25 apprentice
Is upper secondary threshold no upper limit for employer NICs
National insurance for company directors
Assessed on annual earnings period
Many directors reduce NI by paying dividends or employing spouses
Employer allowance
Employees have a 5k annual allowance which can be offset against their class 1 NIC liability, this is to encourage firms to hire.
Cannot be used against directors or where employee earned 100k in previous year
National insurance credits
Where someone is not working but will still build up credit
1- periods looking for work
2- ill, disabled or on sick pay
3- maternity leave
4- caring for child under 12
5- jury service
6- wrongly in prison
7- caring for someone sick or disabled
8- married to member or armed forces
Employed or self employed?
Employed is:
A contract of service, there is a substantial amount of control exerted by the ‘employer’ over where and how the work is done
Self employed is a contract for service
Class 2 national insurance
A flat rate charge for self employed and will give an entitlement to contributory benefits, class 4 does not contribute to national insurance benefits
For anyone self employed with profits above £6725 class 2 NI will be due.
The rate of class 2 NI is 3.45 per week.
Failure to notify HMRC of a liability to class 2 NIC, liability of £100.
Where earning are expected to be below threshold, can apply to HMRC for certificate of exemption
Class 4 NI
Class 4 contributions are earnings related based on profits chargeable to income tax after adjusting for certain capital losses but cannot allow for any personal allowance or pension contributions
9% on profits above 12,570 to 50270
And further 2% on profits above 50270
Administration of NI
NI is administered by National insurance contributions office NICO of HMRC
Note excess NI is not refundable
Collection of class 1 NI
Generally collected through paye- employers responsible to calculate the amount due and deduct this from employee earnings, generally paid monthly, this will show show on employees RTI as well as the employees annual P60.
For class 1a which is benefit in kind, payments will be due 19 July following tax year. 22nd if electronic.
Penalty for late payment if NI
Payments more than 6 months late can attract penalty and another 5% if not paid in 12 months
For class A 5% after 30 days, 6 and 12 months
Payments if classes 2 and 4 NI
Anyone who is liable for class 2 must notify Nico immediately and a penalty charge if a notification is not made by 31 Jan following tax year in question - payment is made via self assessment
Class 4 is included with the individuals self assessment - 2 payments on account and one balancing payment
Class 3 voluntary contributions, full any gaps in a individuals contribution record to increase entitlement to state pension or other benefits - 17.45 per week flat
When are changes to national insurance rules put in place
Where changes are made they come into effect 6 April
