In today's post, we'll go over what National Insurance is and how much your company could be responsible for.
What is National Insurance?
In the United Kingdom, National Insurance is a critical component of the welfare state. It functions as a kind of social security since paying NI payments entitles employees and their families to certain state benefits.
How does it generally work?
Before you can begin paying National Insurance payments, you must first get a National Insurance number. It is also mandatory for UK individuals to pay National Insurance; if you're 16 or older and fall into one of the following categories, you must pay National Insurance if:
- an employee earns more than £184 each week;
- you are self-employed with a yearly profit of £6,515 or more.
In order to eliminate gaps in your NI obligations, you may be allowed to pay voluntary contributions as well.
What are my National Insurance duties as the employer?
It is incredibly important for you as an employer, to follow this guide in order to prevent any avoidable issues that may arise should you fail to follow these steps properly:
- As an employer, it is your responsibility to deduct primary Class 1 payments on behalf of your employees, often known as employees' contributions;
- Employers are also responsible for paying secondary Class 1 payments on their workers' earnings;
- On most taxable benefits and costs, you must additionally make Class 1A payments. The employer is the only one who pays for these;
- You must make employer-only Class 1B payments instead of Class 1 or Class 1A contributions that would otherwise be payable if any of your workers have a PAYE Settlement Agreement ('PSA');
- When you make your monthly Pay As You Earn ('PAYE') payments, you must pay both main and secondary contributions to HMRC in full and on time (or a quarter as appropriate);
- You must keep a record of the contributions deducted from each employee and complete year-end returns for each of them;
- By the 6th of July after the end of the tax year, details of Class 1A contributions pertaining to benefits and costs must be reported on Form P11D(b);
- If paid electronically, Class 1A payments must be made to HMRC by the 22nd of July after the end of the tax year; otherwise, the deadline is the 19th of July;
- Contributions under Class 1B must be computed on goods included in any PSAs your workers may be subjected to;
- If paid electronically, Class 1B payments must be made to HMRC by the 22nd of October after the end of the tax year; otherwise, the deadline is the 19th of October;
- By the 31st of May after the end of the tax year, you must furnish each employee with a P60 detailing the National Insurance contributions due.
How do I calculate my employees’ National Insurance?
You will get a National Insurance category letter for each of your full-time or part-time employees, which you should use for submitting payslips and managing your payroll. This makes it easier to figure out how much you need to contribute for each employee.
A large number of employees fall into this group. However, based on their specific position, your employees may be assigned to one of the following categories:
- Category B - Working women who are married and widows are eligible for reduced National Insurance contributions;
- Category C - Employees beyond the current State Pension age;
- Category J - Employers are permitted to delay NICs because they pay them through another source of income, such as self-employment;
- Category H - Apprentices under the age of 25;
- Category M - Employees under the age of 21;
- Category Z - Employees under the age of 21 are eligible to postpone NICs since they are already paying them through another job.
How much National Insurance do I have to pay?
Not all businesses will be paying the same amount as the total amount is based on specific thresholds. As aforementioned, the amount you pay will be based on the category your employee belongs to in addition to their salaries as well.
If you are unsure about the process, we can discuss how National Insurance works in more depth so that you can assure yourself that everything is done correctly.
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