What is National Insurance?

National insurance contributions (NICs) are set aside to pay the state pension and other benefits.

What class NIC should you be contributing?
• If you earn more than £162 a week and are under the state pension age, you are required to pay NICs of 12% on earnings up to £892 per week.
• If you earn over £892 a week the rate drops to 2% a week.
• The standard rate for NICs payable by employers is 13.8% of an employees earnings, above the same £162 a week threshold.

How can I lower my NICs bill?
• If you are an owner-managed business, then you are able to withdraw funds from the company in the form of salary and dividends.
• If you are an owner manager who has a director’s loan due to you from the company, there is a possibility of paying yourself interest on the balance of the loan outstanding as well.
• By paying yourself a salary which falls between the lower earnings limit of £116 per week and the primary threshold of £162 a week, you would not trigger either an employee or an employer class 1 charge.
• You would still qualify for state pension purposes as having paid sufficient contributions in that tax year.

Having more than one job:
If you have two jobs and you expect to pay class 1 NICs on weekly earnings of at least £892 per week throughout the whole tax year. However, you can ask to defer a payment of NICs in one of the jobs, you will need to make an application for deferment of class 1 NICs on form CA72A.

If you are both employed and self-employed then you will need to pay both:
• Class 1 NICs on your employment income, these are paid in each pay period.
• Class 2 NICs on your self-employed income, these are not collected until 31 January after the end of the tax year.
• Class 4 NICs on your self-employed income, these are paid together with your income tax liabilities in your payments on account, and balancing payments on your self-assessment tax return.

There is a maximum amount of NICs which should be paid when you pay Class 1, Class 2 and Class 4 NICs, an adjustment should be made on the self-assessment tax return to reduce the amount of NICs liability.

Salary Sacrifice
As an employee you can offer your employees a salary sacrifice scheme that enables them to swap cash salary for non-cash benefit.

• Employees can save NICs, by sacrificing some of their pay in return for a benefit.
• This is only available if the salary sacrifice does not reduce the employees pay below the national minimum wage or national living wage.

Can my Business claim employment allowance?
• If you are an employer, you could get up to £3,000 a year off your NICs bill.
• This allowance is offset against your class 1 employers NICs liability up to a maximum of £3,000 in a tax year.
• You can make a claim at any point during the tax year if you tick the ‘Employment Allowance Indicator’ field when you next submit an Employer Payment Summary to HMRC.
• You can claim employment allowance up to four years after the end of the tax year in which the allowance applies.

For example, if you want you want to make a claim for the tax year ended 5 April 2016, you must make your claim no later than 5 April 2020.

HMRC will set any claim for a previous tax year against your future or existing PAYE liabilities, unless you ask them to refund the amount.

There are certain conditions that to be met in order to claim this allowance:
• The director cannot be the only employee paid above the secondary NICs threshold.
• You cannot claim against more than one employer PAYE reference if you have more than one scheme.

Overall
If you are an employer, employee or self-employed and are still unsure about what your NICs are and how you can reduce them, then please get in touch and we will be happy to help.

JDA – Active Practice – 2019-01 – NI Planning

 

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