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AF1 2020/21 > National Insurance Contributions > Flashcards

Flashcards in National Insurance Contributions Deck (15)
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1

What are the factors that determine NICs?

  • Employment status
  • Age
  • Level of earnings
  • Residence status

2

Class 1 - Employees and Employers

Key Points:

  • Paid on earnins: regular wages and salary, bonus, maternity/ sick pay paid by employer. 
  • Share options:
    • NICs paid on shares that can be converted into cash acquired under unapproved share option schemes. 
    • Shares acquired under approved arrangements are NIC free
  • NICs not deducted from pay before calculating income tax.
  • Employer contributions are deducted from profits for tax purposes. 
  • Employee NICs only payable to SRA.
  • NICs based on pay periods e.g. weekly, monthly and not tax-year.

3

NIC 1 - Contribution thresholds:

  • PCT - £183 - employees pay class 1 above this level.
  • Secondary contribution threshold - £169 - employers pay C1 above this level. 
  • LEL - £120 - minimum earnings for employee to be entitled to social security benefits.
  • UEL - £962 - maximum level of NICs on which employee pays NIC at main rate. 
  • Upper secondary threshold for Under 21s (UST) - £962 pw - upper limit for 0% employers rate for under 21s apprentices under 25. 

4

Rates of Class 1 NICs:

  • Employee
    • Below £183 pw = £0
    • £183.01 - £962 pw = 12%
    • Above £962 pw = 2% (additional primary %)
  • Employer
    • below £169 pw = £0
    • Over £169 pw = 13.8% (no ceiling)

5

NICs - Married women & overseas employment:

  • Married Women
    • Pre-6 April 1977 married women could pay reduced NICs (5.85% instead of 12%). 
    • Elections are still in force, but anulled on divorce/ remarriage/ 2 consecutive TYs with earnings below LEL. 
    • Reduced rate leads to reduced benefits. 
  • Overseas Employment
    • Members of EEA only pay towards SS benefits in one state - usually where they work rather than live. 
    • Outside EEA, NICO will collect NICs from employees who work regularly in the UK once they have beem res for 52 weeks. 
    • NICO continues to collect NICs for 52 weeks for thos eleaving the UK to work abroad for UK employer. 

6

NIC Credits - key points:

  • NIC record credited as if minimum contributions have been made when:
    • Unemployed and claiming certain benefits
    • On approved training course
    • income below PCT but above LEL
    • When entitled to certain types of statutory pay

7

Self-employed - Class 2 & 4 - key points:

  • Class 2
    • Gives entitlement to contributory state benefits
    • Flat rate - not earnings related
    • If earning below £6,475 (202/21) can choose not to pay
    • Earnings for tax-year are net profits shown in accounts.
    • No credit if self employed earnings are too low.
  • Class 4
    • Does not give any entitlement to State benefits
    • Earnings related
    • Charged for tax year on profits assessed for income tax for that year
    • Loss from previous year can be brought forward to  reduced  Class 4 payable. 

8

Class 2 and 4 NIC rates:

  • Class 2
    • Weekly flat rate £3.05
  • Class 4 
    • Main rate - 9%
    • Lower annual limit £9,500 
    • Upper annual limit £50,000 
    • Additional rate on earnings abov euppe rlimit - 2%

9

Collecting NIC contributions for the self-employed - key points:

  • Class 2 included in SA, no payments on account, due on 31 Jan
  • Class 4 included in SA, 2 payments on account and a further balancing payment. 

10

Voluntary NI contributions - Class 3 - key points:

  • Flat rate weekly amount for UK residents who have paid insufficient Class 1 or 2 contributions during a tax year. 
  • Cannot be paid in the same year as which SPA is reached or after SPA. 
  • Can pay contributions going back 6 years - this will be at current rate, rather than the rate at the time. 

11

State Pension - Key Points:

  • Forecast can be obtained online/ use form BR19 to find out how many qualifying years have been recorded.
  • Can be deferred - gain 1% for every 9 weeks of deferral (5.8%) a year), no lump sum. 
  • Can be paid outside of UK, but increases only paid to those living in EEA/ countries with a reciprocal agreement. (Not Aus, NZ, SA or Canada).
  • Minimum of 10 years NICs needed for payment, 35 years for maximum payment. 

12

Bereavement support payment (BSP) - key points:

  • For thos eligible for child benefit - £3,500 one-off lump sum payable to surviving spouse/ civil partner of someone who has died, followed by up to 18 monthly payemtns of £350.
  • Otherwise, £2,500 one-off lump sum payable to surviving spouse/ civil partner, followed by up to 18 monthly payments of £100. 

13

Is child benefit taxable?

No, it is paid tax-free. 

14

Is carer's allowance taxable?

Yes, it is 

15

Who is bereavement support payment paid to, and for how long?

  • Paid to - spouse/ civil partner of someone who has died. 
  • Paid for 18 months 
  • Claim within 3 months to obtain the full 18 months payments.