National Insurance Contributions

Question 1

What are the state benefits that NI contributions go towards (9)

Answer 1

*Basic State pension ( before 6th April 2016)
Additional state pension
New state pension ( after 6th April 2016)
Contribution based job-seekers allowance
Contribution based employment and support allowance
Maternity allowance
Bereavement payment
Bereavement allowance
Widowed parents allowance

Question 2

When is NI payable?

Answer 2

Between 16 and State pension age

Question 3

What happens if an employee continues to work after state pension age?

Answer 3

They do not pay any NIcs but the employer will continue to pay secondary Nics

Question 4

What happens if someone whom is self-employed continues to work after state pension age?

Answer 4

They will not pay class 2 NIcs but will have to pay class 4 NIcs on any profits of the business in the tax year that they reach state pension. There will be no further payments in the following tax year

Question 5

Name all of the classes of contribution and who pays then?

Answer 5

Class 1 - paid by employers and employees based on earnings level
Class 1A - paid by employers on taxable benefits in kind provided to employees on the value of benefits
Class 2 - Paid by self employed at a flat rate
Class 3 - Voluntary NICs paid at a flat rate
Class 3 A - Paid by those that have reached state pension age by 6th April 2016. Can only pay til 5th April 2017 to add voluntary contributions to their pension
Class 4 - paid by self employed based on net profits

Question 6

Give some examples of where an individual may not be working but will still receive NI credits towards their state pension? (11)`

Answer 6

• Parents receiving child benefit and caring for a child under 12
• Registered carers
• Claiming jobseekers allowance
• Disabled persons
• Carer’s allowance
• Those on income support and providing care
• Those on working tax credit
• Those on universal credit
• Those on approved training courses
• Men who are unemployed and between the state pension age for women ( traditionally 60 but now rising) and state pension age for men (Currently 65)
• People receiving statutory sick pay, maternity pay, maternity allowance, paternity pay and adoption pay

Question 7

What happens with employees that earn between £112 per week and £155 per week?

Answer 7

They do not pay NI but receive credits towards their state pension

Question 8

How is class 1 NICs paid?

Answer 8

These are usually collected through PAYE. The employer will pay NICs on employee salary and together with employee and employer NICs this is paid to HMRC ona monthly basis

Question 9

What are primary and what are secondary contributions?

Answer 9

Employee are classed as primary and employer are secondary

Question 10

Does an employer with an apprentice under 25 have to pay NICs?

Answer 10

No

Question 11

Does an individual receive tax relief on their NI contributions?

Answer 11

No

Question 12

Who pays NI contributions if the employer continues to work after state pension age?

Answer 12

The employee no longer has to pay but the employer will still continue to make contributions

Question 13

Whose NICs are calculated annually and why?

Answer 13

Directors NICs are calculated annually as they may pay themselves low pay for many months and then a much larger pay in a selected month

Question 14

When did the contracting out schemes stop?

Answer 14

From 2016/2017 it is no longer possible for a scheme to contract out

Question 15

What is the LEL and its definition?

Answer 15

Lower earnings level and this is the minimum level of earnings needed by an employee to be entitled to certain social security benefits such as state pension
Currently £112 per week

Question 16

What is the primary threshold?

Answer 16

If earnings are above the primary threshold then the employee will be liable for NICs. So if paid between £112 and £155 per week then they will build up entitlement but not be liable to pay NICS

Question 17

What is the secondary threshold?

Answer 17

If earnings are above this then the employer is liable to pay NICs

Question 18

What is the UEL?

Answer 18

Upper earnings limit - maximum level of earnings that the employee will be liable for NICs

Question 19

What could married women do before 6th April 1977?

Answer 19

They could elect to pay lower NICs but this would reduce their right to certain social security benefits in particular pensions

Question 20

What are class 1A contributions?

Answer 20

These are what an employer will pay on the benefits in kind that an employee will receive. The employer does not pay NICs on this but will pay income tax

Question 21

What is employment allowance?

Answer 21

Business and charities that pay class 1 NICS can claim employment allowance which gives them a reduction in employer NICS of £3000 per annum
All the duties of the workers have to be in relation to individuals that need care

Question 22

What is the HMRC rule around associated employments?

Answer 22

HMRC will look if an individual has several jobs whether each of these jobs serve a common purpose and share accommodation, equipment, personnel etc.
If this is the case then they would be classed as associated and all the salaries would be combined.
This stops individuals from manipulating the free £155 per week no NICS.

Question 23

What are class 2 contributions?

Answer 23

Paid by the self employed if annual earnings are above £5965

Question 24

What is the small profit threshold?

Answer 24

This is where the self employed person does not have earnings for the year above £5965 and therefore is not liable to pay NICs

Question 25

What state benefits do class 2 NICs give rise to? (3)

Answer 25

• State pension
• Maternity allowance
• Bereavement allowance

Question 26

Can class 2 contributions be paid voluntary?

Answer 26

Yes - to maintain a contribution record
If someone is moving abroad they can continue to pay provided that they were employed or self employed before moving abroad

Question 27

How can Class 2 contributions be paid?

Answer 27

By direct debit, monthly or 6 monthly (31st Jan and 31st July)
In response to a payment request from HMRC in October or April

Question 28

What are class 4 contributions charged on?

Answer 28

On net profits ( profit after capital allowances and business expenses but before pension contributions)

Question 29

Do class 4 NICS provide entitlement to state benefits?

Answer 29

No

Question 30

When and how are class 4 NICS paid

Answer 30

With income tax and class 2 NICS by self assessment

Question 31

What happens to someone that is both employed and self-employed? What NICS do they pay?

Answer 31

They pay class 1, 2 and 4.
However it would be unfair for them to pay the main rates on class 1 and 4 so HMCR will allow a deduction in class 4 where appropriate

Question 32

What are class 3 contributions?

Answer 32

These are made in order to increase entitlement to state benefits but only when they have been insufficient class 1 or 2.

Question 33

How long does an individual have to make up any shortfalls with they NIC records?

Answer 33

6 years from the end of the tax year from which the contributions are being paid
It would be more cost effective to pay class 2 than 3 as these are paid at a flat rate

Question 34

Can contributions be made up in the year that the individual reaches state pension age?

Answer 34

No