National Insurance for employers - the basics

The purpose of this guide is to explain your responsibilities as an employer regarding deductions and payment of National Insurance contributions (NICs). The different classes and categories of NICs are also covered here.

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NICs - your responsibilities as an employer

As an employer, you pay NICs on the earnings you provide to or for the benefit of employees earning above a certain threshold. NICs are calculated and deducted through the PAYE (Pay As You Earn) system when you operate your payroll and must be recorded on the Full Payment Submission (FPS) and paid to HM Revenue & Customs (HMRC).

During each pay period:

  • Calculate and pay the employer and employee Class 1 NICs due on your employees' earnings through your payroll. You can deduct the employee's share of NICs from their earnings at the time you pay them.
  • Submit an FPS to inform HMRC of these payments on or before the day you pay your employees.

After the end of the tax year:

  • calculate and pay employer Class 1A NICs on the benefits in kind you've provided to your employees
  • calculate and pay employer Class 1B NICs 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). You do not include details of the payments you make to self-employed individuals on the FPS.

Regional employer NICs holiday for new businesses

PSAs

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Classes of NICs

The table below explains who must pay each class of NICs and the type of earnings they relate to.

Earnings which are primarily cash or cash like items - for example salaries, wages, fees and cash bonuses - are subject to Class 1 NICs which both employers and employees pay at the same time as Income Tax.

Earnings which take the form of benefits in kind - for example company cars, use of services or goods - are mostly subject to Class 1A NICs, which are calculated separately after the end of the tax year and are only payable by employers and some third parties.

For details of the rates and thresholds that apply to each class of NICs, follow the link at the end of this section.

NICs payable or collected by employers

NICs class

Details

Class 1

  • Payable by both the employee (primary Class 1 contributions) and the employer (secondary Class 1 contributions).

  • Both primary and secondary Class 1 NICs are calculated through your payroll and reported and paid via the PAYE system.

  • Details relating to payments of earnings, which are subject to Class 1 NICs, must be submitted to HMRC on an FPS.

  • Charged as a percentage of employees' earnings over certain amounts.

  • Also applies to a number of employer-provided expenses and benefits (including childcare vouchers over a threshold of £55 per week) subject to certain conditions.

  • Applies only to earnings paid to employees 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 a number of Class 1 categories that apply to employees in different circumstances. These are explained in the later section, 'Class 1 NICs: rates and category letters'.

  • Class 1 NICs for directors are calculated slightly differently from those for other employees. For more information, see the 'More useful links' section at the end of this guide.

Paying your employees and making deductions

Sending payroll information to HMRC

Class 1A

  • Payable by employers and certain third parties on taxable benefits in kind provided to employees.

  • Charged as a percentage of the cash equivalent of the benefits.

Expenses and benefits: the basics

How to pay Class 1A National Insurance

Class 1B

  • 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.

PSAs

Rates and thresholds for employers 2014-15

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Class 1 NICs - rates and category letters

Different categories of employee pay Class 1 NICs at different rates. This is reflected in a range of different 'category letters'. The tables below explain which letters apply to which employees.

One of the factors that determines which category letter applies to an employee is whether or not they're a member of a contracted-out occupational pension scheme. These employees and their employers pay NICs at a lower rate on a certain portion of their earnings because they've opted out of the State Second Pension.

Since 6 April 2012 there has been only one type of contracting out arrangement - contracting out on a defined benefit basis, normally referred to as a Contracted-Out Salary Related (COSR) pension scheme.

Using category letters

You must record a category letter on the FPS if you need to report gross earnings for NICs. If the earnings are below the Lower Earnings Limit (LEL), use the category letter that would apply if the earnings had reached the LEL.

Understanding employee tax codes

Employees not in a Contracted-Out Salary Related pension scheme
NICs category letter Applies to
A All employees who aren't members of a COSR scheme, other than the three exceptions listed below in this table.
B Married women and widows entitled to pay reduced-rate Class 1 NICs who aren't members of a COSR scheme. For more information, see the 'More useful links' section.
C Employees over the State Pension age.
J Employees entitled to defer full-rate payment of Class 1 NICs (who aren't members of a COSR scheme) because they're already paying NICs in another job.
Employees in a Contracted-Out Salary Related pension scheme

NICs category letter

Applies to

D

All employees who are members of a COSR scheme, other than the three exceptions listed below in this table.

E

Married women and widows entitled to pay reduced-rate Class 1 NICs who are members of a COSR scheme. For more information, see the 'More useful links' section.

C

Employees over the State Pension age.

L

Employees entitled to defer full-rate payment of Class 1 NICs because they're already paying NICs in another job.

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Calculating NICs for employees not paid on their usual payday

If you pay employees on a day other than their usual payday - for example, you pay two weeks pay together when someone goes on holiday or where timesheets are submitted late - you should:

  • treat the early or late payment as if it had been made at its usual time
  • complete the FPS to show the payment covers two (or more) earnings periods

This method of calculating NICs can only be used when nothing was paid on the usual payday.

For more information about earnings periods for NICs and for payments made in different tax years see the guidance in Chapter 3 of CWG2 'Employer further guide to PAYE and NICs' - there's a link to this in the 'More useful links' section below.

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'NICs only' employments

Where earnings are subject to NICs only you must:

  • report the 'Gross earnings for NICs in this period' and all appropriate NICs data
  • enter zeros in the 'Taxable pay' and associated tax fields
  • enter code NT in the 'Tax code' field on the FPS as this is a mandatory field

If you realise that you have made a mistake and you have included details in the taxable pay and tax fields you should correct the error by entering zeros in the taxable pay and associated tax fields on your next FPS.

For a new employee you must enter the 'Start date' and complete the 'Starter declaration' using letter 'B' when you pay the employee for the first time.

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More useful links

Download CWG2 'Employer further guide to PAYE and NICs' (PDF 1.7MB)

Employee starts or stops a directorship

Forms and publications

Download CA42 'Foreign-Going Mariner's and Deep Sea Fisherman's contributions for employers' (PDF 2.2MB)

Female employees entitled to reduced rate NICs

National Insurance changes for entertainers from 6 April 2014 on GOV.UK (Opens new window)

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