National Insurance Bedford

The National insurance contributions (NICs) regime is complex, and it’s easy to not pay the full amount of taxes due. This ‘tax’ significantly affects employers, employees and the self-employed. If you’re based in Bedford, Cowley Holmes can provide advice regarding NICs and any other potential problems.

National insurance contributions (NICs) are a tax on earned income. The NICs regime divides income into different classes: Class 1 contributions are payable on employment earnings, while the profits of the self-employed are liable to Class 2 and 4 contributions.

Though it typically goes without notice, national insurance is the second largest source of government revenue, only behind income tax.

There are many factors to consider, and we have listed a few of them below. Please reach out to us for more comprehensive advice.

The Scope of NICS

Employees

Class 1 NICs are deducted from an employee’s earnings, as well as a secondary contribution owed by the employer.

Employee contributions for the 2022/23 tax year are only payable on earnings that exceed £190 per week. The amount owed is 13.25% of earnings above this threshold, up to a maximum of £967 per week (the Upper Earnings Limit). UEL was £967 for 2021/22.

Furthermore, 3.25% is charged on weekly earnings exceeding the ‘upper earning limit’ (UEL). In addition to this, the employer must contribute 15.05% of an employee’s secondary threshold earnings (£175 per week/£170 in 2021/22). There is no set maximum amount for these payments from the employer.

Employer NICS For The Under 21S

From 2022/23, the employer NICs rate for those under 21 will be reduced from 15.05% to 0%. To qualify for the 0% rate, the employee must be under 21 when they are paid.

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 denotes the point where employees’ NICs fall from 13.25% to 3.25%. The employee’s share of the National Insurance contribution (NIC) for 2022/23 will be £967 per week (£967 in 2021/22). The employer will pay 15.05% NICs on top of this amount (13.8% in 2021/22), and the employee will also continue to contribute their own NICs.

Apprentice Under 25 NICS

For apprentices under 25 who earn less than the UST, employer NICs are decreased to 0%. The UST is currently £967 per week and £50,270 per annum for 2021/22. Employers will be responsible for 15.05% (13.8% for 2021/22) of employee NICs on pay above the UST.

An apprentice needs to:

• be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard

• start by having a written agreement that outlines the government recognised apprentice framework or standard, with an expected start and completion date.

Veteran NICS

Civilian employers of veterans will be exempt from employer NICs (National Insurance Contributions) up to the level of the UST (Universal Social Tax, currently £967 per week) for the first year of civilian employment.

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).

You become liable to pay Class 2 NICs at the end of every year, which is typically collected along with your final self-assessment payment. The Class 2 NICs fee for next year is based on the number of weeks worked and self-employed, computed at a rate of £3.15 per week (£3.05 last year).

Self-employed individuals who make less than the Small Profits Threshold of £6,725 for 2022/23 (£6,515 for 2021/22) are not responsible for Class 2 NICs but can choose to pay these NICs at the end of the year to preserve their benefit entitlements.

Employment Allowance

The Employment Allowance is a government-issued tax break that employers can use to offset their Class 1 NICs liability. The current allowance amount is £5,000.

The amount that companies can claim back through the Employment Allowance is restricted to those where the director is earning below the secondary threshold. From 6 April 2020, this will only apply to businesses whose employers’ NIC bill was under £100,000 in the previous tax year.

The Employment Allowance is de minimis State aid, which means that it will be calculated as part of the total amount of aid a business is eligible for under the de minimis State aid cap.

In addition, the employment allowance is capped at £5,000 for cases where there is multiple ‘connected’ employers. Connected employers are companies that one company controls.

The allowance is limited to the employer’s Class 1 NICs liability, but only if that amount is less than the Employment Allowance.

The allowance is included as part of the regular payroll process. Each month, the employer’s payment for PAYE and NICs is reduced by an amount that includes the employer’s Class 1 NICs liability until the Employment Allowance limit has been reached.

Potential NI Problems

TIME OF PAYMENT OF CONTRIBUTIONS

Class 1 contributions are paid monthly, at the same time as PAYE. Class 1A contributions aren’t due until 19 July after the tax year (22nd if paid electronically) in which the benefits were provided. Therefore, it is crucial to be able to distinguish between earnings and benefits.

DIRECTORS

Although directors are employees and must therefore pay Class 1 NICs, holding a directorship can lead to unique NIC-related problems. For instance:

• 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.

We can advise you in any specific circumstances.

Self Employed or Employed

Since an employee’s NICs liability is higher than a self-employed individual’s with the same profits, there is more of an incentive to claim self-employment.

It can sometimes be difficult to determine whether you are employed or self-employed. In practicality, there might be some instances in which the answer is uncertain.

Oftentimes, it is best to receive professional aid before speaking with HMRC regarding your taxes.

HMRC will seek reckoning from the employer if they find that someone was wrongly classified as self-employed.

NIC Enforcement

HMRC compliance visits are designed to discover any unpaid National Insurance contributions that may be owed. During these visits, they ask to see records which support the payments already made.

HMRC has the authority to collect any NICs that are due for both current and past years. If there are arrears, these may come with interest and penalties attached.

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