SEARCH, INDEX, UPDATES, CONTENTS, SERVICES, TAX PLANNING, REDUCING NIC
Reducing the NIC charge may reduce entitlement to benefits, and restrict private pension contributions, and may therefore not be desirable.
Employees pay primary Class 1 NIC at 10% on earnings from £4,615 to £30,420 per annum (from 5 April 2002). The employer pays secondary NIC at 11.9% (11.8% from 6 April 2002).
Avoidance schemes
There have been many schemes to avoid paying NIC, particularly on
bonuses. One example was payment in platinum sponge, a material used in
catalytic converters. The Inland Revenue now consider that all these schemes have been
stopped, and we do not advise their use.
Alternatives
In some cases employees of companies (normally shareholder directors) have advanced loans
to their companies or allow the companies use of property owned by the employee.
There can be good reason why an employee should not charge a rent in these circumstances, but if a commercial rent is charged for the property, or a commercial rate of interest is charged for a loan, income can be extracted from the company without an NIC charge.
Maximum contributions
Where a person has multiple sources of income, they may be entitled to a
refund. This arises in two ways.
There is an automatic refund where total Class 1, 2 and 4 contributions exceed 53 weeks of Class 1 contributions in any tax year. If this situation applies, it is worth submitting a claim to ensure the refund is not overlooked.
An overpayment can also arise in circumstances where an employee becomes self employed or vice versa, or otherwise is both employed and self employed in the same year. The Class 4 contribution is limited to the maximum Class 2 and 4 payable for the year, less the Class 1 and 2 contributions actually paid in the year. This can sometimes be substantially less than the normal calculation of Class 4. Contracted out Class 1 contributions are 'grossed up' to non contracted out contributions for this purpose. A formal claim is always required to obtain a refund if this situation applies.
We can review contributions for any year. The time limit on claims for 1995/96 is 5 April 2002. Application should be made on form CA5610 to -
Inland Revenue Contributions Office
Deferment Services
Longbenton
Newcastle-upon-Tyne
NE98 1ZZ
Telephone 08459 159464
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