National Insurance revision (West Suffolk College)

National Insurance revision

By Polly Sinclair

Multiple Choice

Which of these could NOT be a valid NI number?

• JT 16 04 05 B

• PX 30 15 24 C

• NM 06 58 97 E

• PR 45 78 95 A

Multiple Choice

Does an employee need an NI number to go onto the payroll?

• Yes

• No

Multiple Choice

Which of these is NOT a source of an NI number?

• NVR

• RD3

• CA5403

• FPS

All NI numbers end with A, B, C or D - this used to relate to the quarter of the year when the returns were made for the employee

Valid letters

Not having an NI number does not stop someone being employed. It is not linked to eligibility for employment

Missing number

NI numbers can come from HMRC or the employee​. You don't need any proof from employees of what it is.

Source

Temporary numbers cannot be submitted to HMRC on the FPS. It is good practice to advise employees on how to get one.

Systems

Multiple Choice

National Insurance is only payable on earnings via the payroll

• True

• False

Multiple Choice

Which of these is NOT a class of National Insurance?

• Class 1

• Class 2

• Class 1A

• Class 2A

Multiple Choice

Which of these classes of National Insurance is NOT calculated on percentage basis?

• Class 1A

• Class 1B

• Class 2

• Class 4

Multiple Choice

Which type of worker would never have National Insurance deducted from their pay?

• Company director

• Deemed worker

• Someone receiving SSP

• A 15 year old

It's a generic term which can refer to pay but also benefits and for self-employed, the profits earned

Earnings

Payroll-related NI is all recorded under Class 1 but there are subsections to this, unlike the other classes

Classes

Most NI is calculated on percentages but Class 2 is set at £3.15 a week if profits are over £6725

Calculations

Workers are liable to NI even if they don't pay it. There are exemptions though - both full and partial and some special rules

Workers​

A key factor in determining category of NI

​

Full exemption - no NI, ie under 16s

Partial exemption ​- some NI, ie over SPA, apprentice under 25, employee under 21

Age is relevant at the date of payment not earnings period

Age

Less relevant than it used to be due to equalisation of State Retirement Age although remember special category B for married women​ with election.

Gender is defined as male or female only by HMRC.​

State pension age checker: https://www.gov.uk/state-pension-age

Gender

Not deducting NI properly may be the result of not understanding the status of a worker. Take care with terms like 'director' or 'apprentice' that could be used without being official statuses.

You can report avoidance to HMRC https://www.gov.uk/report-tax-fraud

Employment status

Pay can be liable to NI but not actually suffer a deduction. Statutory payments often confuse employees as if paid on top of 'normal pay' they will attract a deduction. ​

Unlike tax, NI thresholds are per period rather than annually unless for a director.​

MoneyHelper.org.uk is a good site to direct employees to for help understanding NI

Earnings level

There are special rules for workers abroad, working at sea or sometimes coming to the UK. Always take advice from HMRC or tax specialists.

Read more here: http://www.hmrc.gov.uk/gds/nic/work/index.htm

Residency

Calculations

It is important you can both manually calculate NI and explain how it is calculated

Due to the non-cumulative nature of NI it is essential to establish this.

Remember for ad hoc payments after leaving the NI should be calculated on a weekly basis regardless of the previous period that was used.

Earnings period

There are few deductions made from gross to get to 'NICable' earnings - none will be made in calculations you do for EPA.

Salary sacrifice is a common one in the workplace however.​

Earnings

Use the information about the status, age and any other relevant information to determine the category of NI

Check the front of the NI tables for a handy flowchart

Determining category

Multiple Choice

What category: male employee aged 37

• A

• B

• C

• D

Multiple Choice

What category: female worker aged 75

• A

• B

• C

• D

Multiple Choice

What category: apprentice aged 26 in the first year of their apprenticeship

• A

• M

• H

• C

Multiple Choice

What category: employee with certificate CA2700

• A

• B

• J

• V

Multiple Choice

What category: female employee with a CA4139 certificate returning to work after a 10 year period volunteering abroad

• A

• B

• C

• X

This is like a 'second job' NI which you can initiate if you are earning over the UEL elsewhere.

It only applies for each tax year so you need to have systems/checks in place.​

Deferment

Even if a woman has this it becomes invalid if they divorce, become widowed and recieve a state bereavement allowance or if they have a break in paying NI for at least two years.

Certificate of election​

Calculating National Insurance is a case of matching the thresholds to the earnings and applying the relevant percentages based on the category being applied

Using the thresholds

This is the most straightforward calculation as there is no upper earnings limit.

​

​

Employer NI

Category A​

Multiple Choice

What would £48.9125 be rounded to?

• £48.00

• £48.91

• £48.92

You need to remember that the UEL is relevant here - if you write out that line every time then you won't forget.

​

Employee NI

Category A​

Multiple Choice

What would £41.0750 be rounded to?

• £41.00

• £41.07

• £41.08

The UEL is relevant here as earnings are above £4189 for the period

Employee NI

Category A​

Errors made in good faith by the employer should be corrected as soon as possible and underpayments paid over to HMRC and recovery from the employee may be possible.

Take into account customer service!

Making a mistake

Multiple Choice

If an employee has underpaid National Insurance, how much extra can be deducted from the next payroll based on the following information:

Gross pay £500

Employee NI this period £41.07

Employer NI this period £48.91

Previous employee underpayment £50.68

• £41.07

• £48.91

• £50.68

• None

HMRC tools and calculators - GOV.UK

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Next session: PAYE Tax