At McDade Roberts we have a dedicated payroll department that our clients can outsource their payroll headaches to. One such headache can be keeping up to speed with National Insurance. Below is a quick guide to help you.
National insurance contributions (NICs) are a tax on earned income. Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions.
We highlight below the areas you need to consider and identify some of the potential problems. Please contact us for further specific advice.
Scope of NICs
Employees
Employees are liable to pay Class 1 NICs on their earnings. In addition a further secondary contribution is due from the employer.
For 2019/20 employee contributions are only due when earnings exceed a 'primary threshold' of £166 per week. The amount payable is 12% of the earnings above £166 up to earnings of £962 a week, the Upper Earnings Limit (UEL). In addition there is a further 2% charge on weekly earnings above the UEL. Secondary contributions are due from the employer of 13.8% of earnings above the 'secondary threshold' of £166 per week.
Employer NICs For The Under 21s
The rate of employer NICs for those under the age of 21 is 0%. This exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The UST is set at the same amount as the UEL, which is the amount at which employees' NICs fall from 12% to 2%. The weekly UST is £962 for 2019/20. Employers will be liable to 13.8% NICs beyond this limit. The employee will still be liable to pay employee NICs.
NICs For Apprentices Under 25
Employer NICs are also reduced to 0% for apprentices under 25 who earn less than the UST which is £962 per week and £50,000 per annum for 2019/20. Employers are liable to 13.8% NICs on pay above the UST. Employee NICs are payable as normal.
Benefits in Kind
Employers providing benefits such as company cars for employees have a further NICs liability under Class 1A. Contributions are payable on the amount charged to income tax as a taxable benefit. Most benefits are subject to employer's NICs. The current rate of Class 1A is the same as the employer's secondary contribution rate of 13.8% for benefits provided.
NIC's and The Self-Employed
NICs are due from the self-employed as follows:
- Flat rate contribution (Class 2)
- Variable amount based on the taxable profits of the business (Class 4).
The liability to pay Class 2 NICs arises at the end of each year and is generally collected as part of the final self assessment payment.
The amount of Class 2 NICs due is calculated based on the number of weeks of self-employment in the year and calculated at a rate of £3.00 per week for 2019/20.
Self employed individuals with profits below the Small Profits Threshold of £6,365 for 2019/20 are not liable to Class 2 NICs but have the option to pay Class 2 NICs voluntarily at the end of the year so that they may protect their benefit rights.
Class 4
For 2019/20 Class 4 is payable at 9% on profits between £8,632 and £50,000. In addition there is a further 2% on profits above £50,000.
Class 3 Voluntary Contributions
Flat rate voluntary contributions are payable under Class 3 of £15 per week for 2019/20. They give an entitlement to basic retirement pension and may be paid by someone not liable for other contributions in order to maintain a full NICs record.
National Insurance - Employment Allowance
The Employment Allowance is available to many employers and can be offset against their employer Class 1 NICs liability. The amount of the Employment Allowance is currently £3,000.
The allowance is claimed as part of the normal payroll process. The employer's payment of PAYE and NICs is reduced each month to the extent it includes an employer Class 1 NICs liability until the Employment Allowance limit has been reached.
Restrictions
Companies where the director is the sole employee earning above the UST are no longer able to claim the Employment Allowance. The government has announced that from April 2020 the Employment Allowance will be restricted to those employers whose employers' NIC bill is below £100,000 in the previous tax year.
Directors
Directors are employees and must pay Class 1 NICs. However directorships can give rise to specific NICs problems. For example:
- Directors may have more than one directorship
- Fees and bonuses are subject to NICs when they are voted or paid whichever is the earlier
- Directors' loan accounts where overdrawn can give rise to a NICs liability
Enforcement
HMRC carries out compliance visits in an attempt to identify and collect arrears of NICs. It may ask to see the records supporting any payments made. HMRC has the power to collect any additional NICs that may be due for both current and prior years. Any arrears may be subject to interest and penalties.
How McDade Roberts Can Help
Whether you are an employer or employee, employed or self-employed, awareness of NICs matters is vital.
It can be a minefield so it is important to ensure that professional advice is sought so that all compliance matters are properly dealt with.
We would be delighted to advise on any NIC or payroll matters relevant to your own circumstances so please contact us. The first consultation is free so you have nothing to lose.