Changes that may affect an employee’s NICs

Contents

During an employee’s working life there will be times when their circumstances change. This may mean that there is a need to change the contribution Table letter under which you are deducting NICs. This section will help you to identify what action you need to take.

The NI Tables flowchart (PDF 43K) will help you to identify which contribution Table letter and set of tables you should use.

Main changes

The main changes that may happen are an employee:

  • reaches age 16
  • legally changes their recorded gender
  • is a married woman or widow who
    • is entitled to pay reduced rate NICs and who tells you she wishes to pay full-rate NICs
    • loses her right to pay reduced rate NICs
  • joins or leaves your contracted-out occupational pension scheme
  • has more than one job with different employers
  • has more than one job with the same employer
  • becomes a director
  • goes abroad to work
  • reaches State Pension age (60 for women and 65 for men) and continues to work
  • dies.

If any of the above applies to an employee take action as described in the relevant following paragraphs.

An employee reaches age 16

If an employee is aged under 16 there is no NICs liability for the employee or for you as an employer.

Liability for employee’s and employer’s NICs starts from a person’s 16th birthday. If an employee reaches age 16 while working for you and:

  • their earnings are equal to or exceed the Lower Earnings Limit and
  • you do not already use a P11 to record their earnings you should prepare a form P11, or equivalent record, in the same way as when you take on a new employee. You must start to make deductions of NICs from their pay and record the employee’s and employer’s NICs on the P11 or equivalent record.

Enter the appropriate contribution Table letter in the ‘End of Year Summary’ section on the reverse of the P11.

You will also have to start paying your employer’s share of NIC.

An employee legally changes their recorded gender

The Gender Recognition Act 2004, which came into effect from 4 April 2005, allows transsexual people to legally change their recorded gender and to benefit from any rights and responsibilities that are associated with their acquired gender.

For further information see CWG2 Employer Further Guide to PAYE and NICs, Chapter 1.

A married woman or widow who is entitled to pay reduced rate NICs

Some married women and widows are entitled to pay NICs at a reduced rate. A certificate of election - form CA4139, CF383 or, exceptionally, CF380A - is proof of such entitlement and is your authority to deduct reduced rate NICs. Unless you are given a valid certificate by an employee, you must deduct full-rate NICs using the appropriate contribution table letter.

Your employee wishes to pay full rate

If a woman tells you she now wishes to pay full rate, return her certificate of election to her and deduct full rate, using the appropriate contribution Table letter.

Losing the right to pay reduced rate NICs

In certain circumstances a married woman or widow loses her right to pay reduced rate NICs. Those circumstances are set out in detail:

One of the more common reasons why a married woman loses her right is because her marriage ends in divorce or is annulled. If that happens, you must:

  • deduct full-rate NICs from wages or salary you pay her on or after the date of her decree absolute or decree of nullity
  • immediately return the certificate of election to her.

You may consider it worthwhile having arrangements in place:

  • so that an employee knows that they must notify you if they are no longer entitled to pay reduced rate NICs, and
  • to issue periodic reminders to employees advising them of the need to notify you.

For more help, see under ‘married women and widows’ in the booklet CWG2(2008) Employer Further Guide to PAYE and NICs.

An employee joins or leaves your pension scheme

Occupational pension schemes which satisfy certain legal requirements can contract-out of the State Second Pension.

There are three methods of contracting-out of State Second Pension:

  • Contracted-out Salary Related (COSR) scheme.
  • Contracted-out Money Purchase (COMP) scheme.
  • Contracted-out Money Purchase Stakeholder Pension (COMPSHP) scheme.

If you hold a contracting-out certificate (CA7000 or SHP305) and an employee is a member of your occupational pension scheme, you should deduct NICs at the appropriate contracted-out rate.

When an employee joins, or leaves, a pension scheme look at the NI Tables flowchart (PDF 43K), to check which contribution Table letter you should use.

If you operate more than one pension scheme an employee may choose to move between schemes during the tax year. In addition to identifying the correct contribution Table letter to use if an employee changes from a COSR to a COMP pension scheme, or between COMP schemes, you will also have to ensure the employee’s record reflects the correct Scheme Contracting-Out Number (SCON).

An employee may also change from an Appropriate Personal Pension (APP) or APP Stakeholder Pension scheme to your occupational contracted-out scheme. This will also change the contribution Table letter under which you deduct NICs.

For further information see CWG2 Employer Further Guide to PAYE and NICs, under ‘occupational pension schemes’.

An employee has more than one job

An employee has more than one job with different employers

An employee may tell you that they have another job where they are already paying NICs and that you should only deduct NICs at 1% from the salary that you pay them.

If an employee with more than one job thinks that they will earn in excess of the weekly or monthly UEL in one, or a combination of more than one, of their jobs, they can ask the HM Revenue & Customs National Insurance Contributions Office for permission to defer paying some of the NICs in their other jobs.

The HM Revenue & Customs National Insurance Contributions Office will send you form CA2700 if it agrees that the employee may defer some of the NICs they would otherwise have to pay on the earnings they receive from you. This form authorises you to deduct employee contributions at 1% on all earnings you pay to the employee that exceed the ET, including any earnings above the UEL.

You must still pay your employer’s share of the NICs under the appropriate contribution Table letter – for help in identifying the right contribution Table letter see the NI Tables flowchart (PDF 43K).

Until you receive the CA2700 form, continue to deduct employee’s contributions at the appropriate rates.

For further information:

An employee has more than one job with the same employer

There are special rules about calculating NICs in these circumstances. For further information see CWG2 Employer Further Guide to PAYE and NICs, under ‘National Insurance contributions (NICs)’.

An employee becomes a director of your company

When you make an employee a director or a new director starts work, there are special rules that apply to the calculation of NICs. You can find these rules in the booklet CA44 National Insurance for Company Directors, which is
available on your Employer CD-ROM or from the Employer Orderline.

An employee goes abroad to work

If you have an employee who goes abroad to work, see the booklet CWG2 Employer Further Guide to PAYE and NICs, Chapter 4.

An employee reaches or is over State Pension age

If an employee reaches or is over State Pension age (60 for women, 65 for men) they no longer have to pay NICs.

You must still pay your employer’s share of NICs.

Before you stop deducting employee NICs from the employee’s wages, you must see some proof of their date of birth, for example a passport or birth certificate, to show that they have reached State Pension age. It would be helpful if you keep a record of the proof you have seen.

Alternatively, they can provide you with one of the following certificates of age exception – CA4140 or CF384.

If you stop deducting employees’ contributions before you have seen proof, or continue to pay employer contributions at the contracted-out rate, you are responsible for any underpayment.

For further information see CWG2 Employer Further Guide to PAYE and NICs, under ‘State Pension age’.

Which National Insurance Tables to use

You must use the correct Tables in calculating the NICs due on your employee’s earnings

Check you are using the Tables for 2008-09.

If your employee is under 16 years of age there is no NICs liability.

 

If you employ mariners, the CA42 National Insurance Tables, give details of category letters, rates and limits to use.

Important - please note:

NIC Tables are updated every Tax Year. These are available on your Employer CD-ROM or can be requested from the Employer Orderline.

Check you are using the Tables for 2008-09.

You must use the correct Tables when calculating the NICs due on your employee’s earnings.

An employee dies

If an employee dies while working for you, and a payment is due on or after the date of death that would normally attract a deduction of NICs, there is no liability for either employee or employer NICs.

For further information see CWG2 Employer Further Guide to PAYE and NICs, under ‘Death of employee’.

Recalculating NICs because of a change in circumstances or an error

Subject to special rules explained below, if you do not deduct the correct amount of NICs at the proper time because of a change in the employee's circumstances or because you discover an error has been made in good faith, you can:

  • recover any underpaid NICs by making extra deductions from later earnings
  • refund any overpaid NICs.

The action you take will depend on whether you will be making adjustments to NICs from:

  • a current date
  • a previous date
    • within the same tax year, or
    • in a previous tax year.

and whether the adjustment:

  • results in an under or overpayment of NICs
  • involves a change in the contribution Table letter that you have been using.

Adjustments that are made from a current date will not involve either an under or overpayment of NICs but they will normally require a change in the contribution Table letter - for example, an employee reaches State Pension Age.

Adjusting NICs from a current date

If you are adjusting the NICs from a current date using a paper P11 Deduction Working Sheet:

  • draw a line across the P11 columns 1a to 1e under the last entry for the original contribution Table letter and begin entering the new contribution details, including the new contribution table letter, on the next available line
  • enter the totals of columns 1a to 1e up to the date of change in the boxes next to the entry for the original contribution Table letter in the 'End of Year Summary' section on page 2 of P11
  • enter the new contribution Table letter on the next line of the 'End of Year Summary' section.

If you are using the P11 Calculator on the Employer CD-ROM

  • go into the employee’s details in the employer database and change the NI Table letter.

Adjusting NICs from a previous date within the same tax year

If you are adjusting the NICs from a previous date within the same tax year using a paper P11 Deduction Working Sheet, amend the P11 by:

  • drawing a line through each entry that you are adjusting so that the original entry can still be read
  • recording the right amounts and, if necessary, the correct Table letter alongside
  • entering the amended totals of column 1a to 1e in the boxes next to the entry for the original contribution Table letter in the 'End of Year Summary' section on page 2 of the P11
  • entering the new contribution Table letter, if necessary, on the next line of the 'End of Year Summary' section.

If you are using the P11 Calculator on the Employer CD-ROM:

  • enter the P11 Calculator
  • select the employee to whom the error relates
  • go to the P11 Calculator main menu
  • select 'view P11 summary' and take a note of the previous NI details that are incorrect
  • select 'back' then use the 'Amend the previous pay period for this employee' to delete all of the pay periods to which the error relates
  • if necessary, go to the employer database and change the Table Letter for the employee
  • go back into the Calculator and re-input the gross pay for all the pay periods you have just deleted.

If primary NICs have been overpaid refund the difference to the employee.

Adjusting NICs from a previous date in a previous tax year

If you are adjusting the NICs from a previous date within a previous tax year using a paper P11 Deduction Working Sheet, amend the P11 for the current year only, by:

  • drawing a line through each of the entries that you are adjusting so that the original entry can still be read, and recording the right amounts alongside
  • drawing a line, if necessary, through the contribution Table letter in the 'End of Year Summary section and entering the new contribution Table Letter alongside.

If primary NICs have been overpaid for the previous tax year and either

  • you have not yet sent in your Employer Annual Return and final payment to your Accounts Office:
    • make a refund of the difference to the employee
    • adjust your final payment
    • amend your Employer Annual Return to show the correct figures
    • amend the P11 as described above, or
  • you have already sent in your Employer Annual Return and final payment to your Accounts Office, you must apply to HM Revenue and Customs National Insurance Contributions Office for a refund of employer contributions. At the same time HMRC will automatically refund employee contributions to your employee(s).

The address you should write to is:

HMRC
National Insurance Contributions Office
Refunds Group Employers Unit
Room BP1001
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

If you are using the P11 Calculator on the Employer CD-ROM follow the same steps for Employer CD-ROM users as described under Adjusting NICs from a previous date within the same tax year.

Underpayments of NICs

If NICs have been underpaid for the previous tax year and either:

  • you have not yet sent in your Employer Annual Return and final payment to HMRC:
    • include the underpayment with your final payment, sending it either electronically or by cheque direct to your Accounts Office,
    • submit your Employer Annual Return (P14s and P35) to show the correct figures,
    • amend the P11 as described under ‘Adjusting NICs from a previous date in a previous tax year’, or:
  • you have already sent in your Employer Annual Return and final payment to HMRC:
    • submit an amended Employer Annual Return (P14(s) and P35 as appropriate) to reflect only the amount of any amendment (i.e. the underpaid NICs)
    • send a letter to your HMRC office explaining the reason for the amendment
    • send any additional payment due as a result of the amendment to HMRC, either electronically or by cheque direct to your Accounts Office.

Recovering underpayments from your employees

If you find that the employee has underpaid NICs as a result of an error made by you in good faith you can recover the underpayment. You can do this by making extra deductions from any later earnings you pay the employee in the remainder of the tax year in which the error was discovered and the following tax year. The extra deductions made from any later payment of earnings can be no greater than the employee's contributions due on those earnings.

For example, if NICs of £15 are due on the later earnings, you can deduct no more than an extra £15 towards the underpayment.

If any arrears are left outstanding after the end of the second tax year you must not recover these from any other earnings paid to the employee. You, as the employer, must bear the cost of the balance.

Software users

Consult your agent or software provider if your software guide does not cover this issue.

Further help

For further help on what to do if a mistake is discovered during the tax year or after it has ended see the CWG2.

Employer Further Guide to PAYE and NICs, under ‘Mistakes in amount of NICs or PAYE deducted’. Please see further information on what counts as an error in good faith.