National Insurance can be a complicated area if you’re not sure of the rules and regulations. In return for paying National Insurance Contributions you qualify for the following state benefits:
- Basic state pension; Additional state pension
- New state pension
- Contribution based job seekers allowance
- Contribution based employment and support allowance
- Maternity allowance and bereavement benefits
Types of National Insurance
There are different types of National Insurance that are paid by either an individual or employer, listed below:
- Class 1 Primary – paid by an employee on employment income, collected under the PAYE system*
- Class 1 Secondary – paid by an employer on income paid to employees, collected under the PAYE system*
- Class 2 – paid by the self-employed at a defined weekly rate if earnings from self-employment are greater than a set limit
- Class 3 voluntary contributions – paid by made by those seeking to retain entitlement to state benefits who are not making sufficient Class 1,2 or 4 contributions
- Class 4 – Paid by the self-employed on earnings between a set limit
- Class 1A – Paid by an employer on the value of benefits in kind provided to employees
- Class 1B – Paid by an employer on PAYE settlement agreements at the same rate as Class 1A*
National Insurance number
A UK individual will be given a National Insurance number shortly before their 16th birthday, or earlier if child benefit is paid for the child. Workers coming from overseas need to apply for a National Insurance number before they can apply for benefits, but a National Insurance number is not a pre-requisite for working in the UK.
An individual must pay National Insurance in the following circumstances:
- Aged between 16 and the State Pension age
- An employee earning above the primary threshold
- Self-employed and making a profit above the lower profits limit (unless you possess an exception)
Individuals who do not fall into the qualifying criteria for making National Insurance contributions may still make voluntary contributions in order to guarantee entitlement to state benefits, such as the State pension, and fill any gaps in their national Insurance contribution record.
Self Employment National Insurance
An individual who is both employed and self-employed will be liable to Class 1 National Insurance on employment income, as well as Class 2 and Class 4 National Insurance on self-employed income. The overall National Insurance contributions will depend on the combined income from all types of employment. We can calculate the correct National Insurance Contributions that are owed, known as the annual maxima, and in some cases, defer paying your National Insurance to avoid overpayment. If you have overpaid National Insurance contributions, we can claim a repayment on your behalf.
An employer must pay National Insurance contributions in the following circumstances:
- For employees aged 16 and over
- For employees earning above the primary threshold
- On the provision of benefits in kind received by employees
- On the establishment of PAYE settlement agreements (PSA)
Benefits in kind provided to employees and expenses paid on behalf of employees are liable to Class 1A National Insurance, so long as the company does not hold a dispensation or they have not been provided under a PSA. In which case, the total value of taxable benefits and expenses must be reported to HM Revenue & Customs on form P11D (b) on an annual basis.
There are rules that are unique for company directors on the calculation of National Insurance Contributions due. We can discuss this with you and ensure that National Insurance liabilities are minimised wherever possible.
In relation to National Insurance, we at Stephenson Smart can offer the following assistance:
- Application for a small earnings exception for Class 2 National Insurance
- Applications for deferment of Class 4 National Insurance
- Calculation and submission of form P11D (b) for Class 1A National Insurance
- Calculation of maximum National Insurance Contributions due for the year and assistance in claiming a refund of overpaid contributions