First introduced by the National Insurance Act 1911, National Insurance has gone through many changes to become what it is today.
National Insurance is a system of contributions paid by workers and employers towards the cost of certain state benefits. Initially, National Insurance was a contributory system of insurance against illness and unemployment, although later expanded it’s scope to provide retirement pensions and other benefits.
Over the next week or so, we’re going to write a few blog posts about National Insurance; one about Employer’s National Insurance contributions, another about Employee’s National Insurance Contributions, and the last about Self Employed National Insurance Contributions.
This particular blog post is going to focus on Employer’s National Insurance Contributions and Rates for 2012/13.
So, firstly, as an employer, you pay Employers National Insurance Contributions based on the earnings you provide to your employees. This includes benefits, such as providing your employees with company cars, or company mobile phones. Most workers (whether employed or self-employed) will also pay NICs on their earnings, as well as income tax. The National Insurance Contributions go towards building up workers’ entitlements to social security benefits such as Jobseeker’s Allowance and the State Pension.
The Income Tax and National Insurance Contributions are calculated and deducted at the same time through the PAYE system when you operate your regular payroll. However, the NICs that apply to many employer-provided benefits are calculated separately after the end of the tax year.
Employer’s National Insurance Responsibilities
As an employer, your main responsibilities in regard to National Insurance Contributions are as follows:
- To deduct and pay the employer and employee Class 1 NICs due on your employee’s earnings through your payroll
- To pay employer Class 1A NICs after the end of the tax year on benefits you’ve provided to your employees
- To pay employer Class 1B NICs after the end of the tax year if you’ve agreed a PAYE Settlement Agreement (PSA) with HMRC.
If any of the people you engage to carry out work for you are self-employed, then they are responsible for paying their own NICs (Class 2 and Class 4).
There are six classes of NICs, and below, you will see detailed the 3 types of NIC that you, as an employer, have to collect or pay.
Class I National Insurance Contributions
- Payable by both the employee (primary Class 1 contributions) and the employer (secondary Class 1 contributions)
- Both primary and secondary Class 1 NICs are collected through your payroll via the PAYE system.
- These contributions are charged as a percentage of employee’s earnings over a certain amount (see table at the end of this blog post)
- Also applies to a small number of employer-provided expenses and benefits (including childcare vouchers over a threshold of £55 per week).
- Applies only to employees who are aged 16 or over. Employee contributions stop at State Pension age, but employer contributions continue for as long as the employee continues to work.
- There are numerous differed Class 1 categories that apply to employees in different circumstances. Use our free ask an accountant service if you have any doubts.
- Note that Class 1 National Insurance Contributions for directors are calculated slightly differently from those for other employees. Again, if you have any doubts, or need any help, use our free ask an accountant service.
Class 1A Employer's National Insurance Contributions
- Payable by employers and certain third parties on taxable benefits provided to employees
- Charged as a percentage of the cash equivalent of the benefits.
Class 1B Employer's National Insurance Contributions
- Payable by employers who have agreed a PAYE Settlement Agreement (PSA) with HMRC.
- Charged on the combined value of the items covered by the PSA and the tax payable by the employer under the PSA.
National Insurance Rates for 2012/13 compared to past tax years
And there you have it, your guide to Employer's National Insurance!