Summary of National Insurance Contributions

NIC is one of the taxes that is often forgotten about – by both students and the taxpayer! Fiona Winter, one of our tax tutors, explains why.

Perhaps it is the lack of the word “tax” that means we forget about it but, as a basic rate employee, remember that as well as paying 20% income tax  (UK rates), or 19%, 20%, 21% income tax (Scottish rates), you will also be paying 12% NIC on your salary.

The NIC paid by your employer on that same salary is 13.8%, meaning that HMRC will be taking more NIC than tax on your salary. As you earn more, the employee rate does drop to 2% but your employer continues to pay 13.8%.

If you are studying for PoT, you will be covering NIC on your course and this will become assumed knowledge for TPS tax and TPE.

NIC rates are all available in your rates sheet so there is no need to learn the figures, but you must know what type of NIC applies in different situations and how this is paid.

Remember: Your tax rates sheet will be provided in your exam. Read the rates sheet carefully as different limits apply to different classes of NIC.

[Source information – Principles of Taxation Module 6]

Type

Who pays? On what?

Rates

Payment

Class 1 – Primary

Paid by employees, generally on cash earnings

12% and 2%

Collected through PAYE system, paid to HMRC by employer.

Class 1 – Secondary

Paid by employers, generally on cash earnings

13.8%

Collected through PAYE system, paid to HMRC by employer.

Class 1A (covered in TPS tax)

Paid by employer on benefits provided to employees

13.8%

Paid direct to HMRC by 22 July following fiscal year.

Class 1B (covered in TPS tax)

Paid by employer on PAYE Settlement Agreements (when employer pays tax on employee’s behalf)

13.8%

Paid direct to HMRC.  No details required for PoT course.

Class 2

Paid by self-employed individuals, on trade profits

£2.95 per week

Paid via self-assessment, on 31 January following fiscal year.

Class 3

Paid voluntarily by individuals with insufficient contributions to qualify for earnings-related state benefits.

£14.65 per week

No details required for tax course.

Class 4

Paid by self-employed individuals, on trade profits

9% and 2%

Paid via self-assessment, affecting POA (Payments on Account)

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