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Why should you read this guide?

Whether you are setting up in business or already in business for yourself the chances are you will have a National Insurance Contribution (NIC) liability. If you are not aware of this then you should read this guide to find out more.

Background

As an employer you have a legal responsibility to operate the NIC scheme for your business. This means that for you and each of your employees you need to calculate the amount due to HMRC and make these payments on a monthly basis. This is normally done through the Pay as You Earn (PAYE) scheme. Typically, anyone in the UK earning money is required to pay NIC payments and this is administered by their employer.

Types of NIC

Class 1: This is the standard NIC paid by employee and employer. Both have an obligation to pay a contribution if the employee is over 16 and earns more than the Earnings Threshold (ET). The amount to be paid is based on a percentage of the earnings. The payment is attributed to the employees National Insurance Number and entitles them to various state benefits.

Class 1A: This contribution is made by employers who provide any members of staff with benefits in kind e.g. company car, health insurance etc. The payments are made against benefits detailed in annual return form P11d.

There are other types of NIC that may affect your business and you should rely on your accountant to advise you on these.

Calculating NIC liability

HMRC have made the calculation of payments very easy by enabling this to be done using online tools. You are still able to use books to enable you to calculate these payments but this process is much more complicated.

For each employee that you have you should have a form P11. This will contain all their details on tax code, national insurance number etc. As you make a payment to them each week/month you will complete the amount due by both the employee and employer. This is fairly straightforward if your employees get paid the same amount each month as the NIC will not change from one month to the next. New tables and a new disk will be issued by HMRC at the start of every tax year where a relevant change has been made.