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An outline of National Insurance Contributions.
All payments to employees including "casuals", "pensioners", "part-timers" are subject the PAYE and NIC rules. Some employees may not be liable to pay PAYE or NIC, but the employer still needs to keep records showing that potential deductions were considered.
NI Contributions applicable to payroll are Class 1 and Class 1a. See NIC Summary for other classes of contribution and Directors Pay for some possible ways of reducing NIC.
The Contributions Agency became part of the Inland Revenue in April 1999. They issue sets of tables for calculating NIC's every year.
Employers who do not operate a pension scheme, or who operate group personal pension schemes, receive tables A, B and C for "Not contracted out" contributions. The employees may personally "Contract out" of the State Earnings Related Pension Scheme (SERPS) but this will not affect the NIC deductions made by the employer. The rebate is paid direct to the pension fund by the Contributions Agency.
Those employers who have pension schemes may be required to use tables A, B and C, but might be required to use "Contracted out" tables D, E, and C if the pension scheme they operate gives Salary Related benefits, or F, G or S if the benefits arise from Money Purchase Schemes.
There are also other tables, e.g. for Mariners.
Each set of tables includes figures for weekly or monthly deductions. Two, four and thirteen weekly payrolls are multiples of the weekly tables.
Each set of tables includes figures for full contributions, e.g. table A, which apply to all staff except those covered by Married Women's Reduced Rate and Age Exemption certificates. If an employee produces, and an employer holds a copy of an exemption certificate, other tables apply.
Women who were married and employed prior to April 1975 could elect to pay a reduced contribution shown in tables B, E or G. It has not been possible to make that election since April 1975. The election becomes void if a woman does not pay contributions for two years, or elects to pay full contributions.
Employees of state pension age and over do not pay employee contributions. The employer contributions continue as shown in tables C and S.
NI contributions are always calculated on the individual weekly or monthly pay period, except for most company directors who always have an annual earnings period to 5 April but may make payments on account as employees.
For the year ended 5 April 2007 earnings in excess of £84 per week, £364 per month are recorded for benefit purposes but employee and employer contributions are payable when earnings reach £97 per week or £420 per month. Employees contributions are reduced to1% above earnings equivalent to £33,540 per annum. There is no limit on employers contributions. Table A contributions are 11% for the employee and 12.8% for the employer.
The amount of pay on which NI contributions must be calculated includes most payments made on behalf of employees such as an employee's pension contributions, mortgage payments, telephone bills etc. unless the contract is directly with the employer.
Class 1a NIC arises on car and car fuel benefits and used to be remitted by the 19 July following the tax year to 5 April in which the benefit arose, and shown on forms P14/P60 as category Y. This is now remitted by separate payslip following completion of forms P11d and not through the payroll records.
See also Employment Status, Contract of Employment, Working Time Regulations, PAYE, SSP, SMP, SPP, SAP, NMW, Student Loans.
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 29 March 2006.