Factsheets

5.4 National Insurance

National insurance contributions (NIC) are essentially a tax on earned income. The NIC regime divides income into different classes: Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions.

National insurance is often overlooked yet it is the largest source of government revenue after income tax.

Since April 1999 the collection of NIC has been under the control of HMRC to promote greater alignment of tax and NICs.

We highlight below the areas you need to consider and identify some of the potential problems. Please contact us for further specific advice.

Scope of NICs

Employees
Employees are liable to pay Class 1 NIC on their earnings. In addition a further secondary contribution is due from the employer.

Employee contributions are only due when earnings exceed a ‘primary threshold' of £100 per week in 2007/08. The amount payable is 11% of the earnings above £100 up to earnings of £670 a week in 2007/08. In addition there is a further 1% charge on earnings above £670 a week in 2007/08. The limits are increased to £105 and £770 for 2008/09.

Secondary contributions are due from the employer of 12.8% of earnings above the ‘primary threshold'. There is no upper limit on the employer's payments.

Benefits in kind
Employers providing benefits in kind such as company cars for employees have a further NIC liability under Class 1A. Contributions are payable on the amount charged to income tax as a taxable benefit.

Most benefits are subject to employer’s NI. The current rate of Class 1A is the same as the employer' ...