National Insurance

The Employment Allowance benefits eligible employers by reducing their National Insurance liability. The current allowance is £5,000. An employer can claim less than the maximum if this covers their total Class 1 NIC bill.

The allowance is only available to employers that have employer NIC liabilities of under £100,000 in the previous tax year.

Connected employers or those with multiple PAYE schemes will have their contributions aggregated to assess eligibility for the allowance. The Employment Allowance can be used against employer Class 1 NICs liability. It cannot be used against Class 1A or Class 1B NICs liabilities. The allowance can only be claimed once across all employer’s PAYE schemes or connected companies. De minimis state aid rules may also apply in restricting the use of the allowance.

Employment Allowance claims need to be re-submitted each tax year. There are currently a number of excluded categories where employers cannot claim the employment allowance. This includes limited companies with a single director and no other employees as well as employees whose earnings are within IR35 ‘off-payroll working rules’.

If you have lost or forgotten your National Insurance number there are a number of ways to locate it. Firstly, you could try and locate the number on paperwork such as your tax return, payslip or P60. You can also use your personal tax account or the HMRC App to find your National Insurance number.

If your National Insurance number still cannot be found a request can be submitted in writing to HMRC using form CA5403 or by telephone. HMRC will not disclose your number over the telephone and will instead send the details by post to the address HMRC has for you on file. The details should arrive within 15 days.

Teenagers should automatically be sent a letter just before their 16th birthday detailing their National Insurance number. These letters should be kept in a safe place. The previously issued plastic National Insurance cards are no longer available.

The National Insurance number helpline can help those aged between 16 and 20 who have not received a letter with details of their National Insurance number as well as other new applicants.

An individual must have the right to work or study in the UK in order to apply for a National Insurance number.

Directors are classed as employees and pay National Insurance on annual income from salary and bonuses that exceed the Primary Threshold. The annual threshold is £12,570 in the current 2024-25 tax year.

Many director shareholders take a minimum salary and any balance of remuneration as dividends. This tends to reduce National Insurance Contributions (NICs), and in some case income tax. The planning strategy is to pay a salary at a level that qualifies the director for state benefits, including the State Pension, but does not involve payment of any NICs.
 
A director’s liability to NI is worked out based on their annual (or pro-rata annual) earnings. This differs from regular employees whose liability is calculated based on their actual pay period usually weekly or monthly. Payments on account of a director’s NICs can be made in a similar way as employees. However, an annual adjustment must be made at the end of the tax year.

Directors, who are first appointed during a tax year are only entitled to a pro rata annual earnings band which depends on the actual date appointed and the amount of time remaining in the tax year. Care needs to be taken in these circumstances not to incur an unexpected liability to pay NIC.

There are a number of considerations to consider when setting the most tax/NIC efficient salary.

Employees with more than one job may be able to defer or delay paying Class 1 National Insurance in certain circumstances.

This deferment can be considered when any of the following apply:

• You pay Class 1 National Insurance with more than one employer.
• You earn £967 or more per week from one job over the tax year.
• You earn £1,209 or more per week from 2 jobs over the tax year.

This deferral could result in NIC deductions at a reduced rate of 2% on your weekly earnings between £242 and £967 in one of your jobs, instead of the standard rate of 8%.

HMRC will check if you have paid enough National Insurance at the end of the tax year and will write to you if you have underpaid contributions.

Most self-employed people are also required to pay Class 4 NICs. It used to be possible to defer these contributions, but that is no longer the case. You may be able to claim a refund for previous tax years.

There is an online service available on HMRC to check your National Insurance Contributions (NIC) record online. The service is available at https://www.gov.uk/check-national-insurance-record

In order to use this service, you will need to have a Government Gateway account. If you do not have an account, you can apply to set one up online.

By signing in to the 'Check your National Insurance record' service you will also activate your personal tax account if you have not previously done so. HMRC’s personal tax account can be used to complete a variety of tasks in real time such as claiming a tax refund, updating your address and completing your self-assessment return.

Your National Insurance record online will let you see:

• What you have paid, up to the start of the current tax year (6 April 2024).
• Any National Insurance credits you have received.
• If gaps in contributions or credits mean some years do not count towards your State Pension (they are not 'qualifying years').
• If you can pay voluntary contributions to fill any gaps and how much this will cost.

In some circumstances it may be beneficial, after reviewing your records, to make voluntary NIC contributions to fill gaps in your contributions record to increase your entitlement to benefits, including the State or New State Pension. If you would like to discuss this further, please call.

Most self-employed people are required to pay Class 4 National Insurance contributions (NICs) if their profits are £12,570 or more a year.

Class 4 NIC rates for the tax year 2024-25 are 6% (2023-24: 9%) for chargeable profits between £12,570 and £50,270 plus 2% on any profits over £50,270.

A number of categories of people are exempt from paying Class 4 NICs, these include:

• People under the age of 16 at the beginning of the year of assessment.
• People over State pension age at the beginning of the year of assessment. A person who attains State pension age during the course of the year of assessment remains liable for Class 4 NICs for the whole of that year.
• Trustees, guardians etc of an incapacitated person are exempted from Class 4 NICs on that income.

The Class 4 NIC rate is lower than the corresponding rate for employees who pay National Insurance at 8% on the same income levels. Both the employed and self-employed pay 2% National Insurance contributions on income above the higher rate threshold.

Carer’s credit is a National Insurance credit that can help carers to fill gaps in their National Insurance record. Carers who don’t qualify for Carer’s Allowance may qualify for Carer’s Credit. This may also help carers increase their State Pension entitlement.

The Carer’s Credit is available to qualifying applicants caring for one or more people for at least 20 hours per week. A carer’s income, savings or investments do not affect their eligibility for Carer’s Credit. The carer must also be aged 16 or over and under the State Pension age to qualify.

The person the carer is looking after must usually receive one of the following benefits:

• Personal Independence Payment – daily living component
• Disability Living Allowance – the middle or highest care rate
• Attendance Allowance
• Constant Attendance Allowance at or above the normal maximum rate with an Industrial Injuries Disablement Benefit
• Constant Attendance Allowance at the basic (full day) rate with a War Disablement Pension
• Armed Forces Independence Payment
• Child Disability Payment – the middle or highest care rate
• Adult Disability Payment – daily living component at the standard or enhanced rate

If the person being cared for is not receiving one of the qualifying benefits, the Department for Work and Pensions (DWP) will consider whether the level of care provided is appropriate to still qualify for Carer's Credit. The DWP will usually consider the level of care as appropriate if there is a signed care certificate confirming this from a health or social care professional. 

There is an online service available on HMRC to check your National Insurance Contributions (NIC) record online. The service is available at https://www.gov.uk/check-national-insurance-record

In order to use this service, you will need to have a Government Gateway account. If you do not have an account, you can apply to set one up online.

By signing in to the 'Check your National Insurance record' service you will also activate your personal tax account if you have not already done so. HMRC’s personal tax account can also be used to complete a variety of tasks in real time such as claiming a tax refund, updating your address and completing your self-assessment return.

Your National Insurance record online will let you see:

• What you have paid, up to the start of the current tax year (6 April 2023).
• Any National Insurance credits you have received.
• If gaps in contributions or credits mean some years do not count towards your State Pension (they are not 'qualifying years')
• If you can pay voluntary contributions to fill any gaps and how much this will cost

In some circumstances it may be beneficial, after reviewing your records, to make voluntary NIC contributions to fill gaps in your contributions record to increase your entitlement to benefits, including the State or New State Pension. If you would like to discuss this further, please do not hesitate to be in touch.

As had been widely expected, the Chancellor announced further changes to National Insurance contributions (NIC) rates for employees and the self-employed.

There will be a further 2% cut in the main rate of Employee National Insurance from 6 April 2024. This will see Class 1 NICs reduced by 2% from 10% to 8%. This is on top of the earlier reduction, announced as part of the Autumn Statement measures, which reduced Class 1 NICs from 12% to 10% on 6 January 2024. When both of these changes are taken together, the Treasury say this will save the average worker on £35,400 over £900 a year.

The Chancellor also announced that the main rate of self-employed National Insurance, Class 4 NICs, on all earnings between £12,570 and £50,270 will be cut by a further 2%, from 8% to 6% from April 2024.

This is in addition to the previous announcement in the Autumn Statement that the current rate of Class 4 NICs would be reduced from the current 9% to 8% from 6 April 2024. Taken together this means that the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6% from April. Combined with the previously announced abolition of the requirement to pay Class 2 NICs from 6 April 2024, this will save an average self-employed person making profits of £28,000 approximately £650 NIC a year.

Taken together these cuts mean:

• A hard-working family with two earners on the average salary of £35,400 each will be better off by £1,826.
• An average full-time nurse on £38,900 will be better off by £1,053.
• A senior nurse with five years experience on £42,618 will be better off by £1,202.
• The average police officer on £44,300 will be better off by £1,270.
• A cleaner working night shifts on £21,058 will be better off by £340.
• A typical junior doctor on £65,000 will be better off by £1,508.
• A typical self-employed plumber on £34,361 will be better off by £846.
• The typical teacher on £44,300 will be better off by over £1,270.

Class 1A NICs are paid by employers in respect of most benefits in kind provided to employees such as a company car. Class 1A NICs are also due on charge on termination awards above a £30,000 threshold that have not already been subjected to Class 1 NICs deductions. There’s no employee contribution payable for Class 1A NICs.

Class 1A NICs are due in respect of most benefits provided to:

• directors and certain other persons in controlling positions;
• employees; and
• members of the family or households of the above.

Where a benefit is provided as part of salary sacrifice or other optional remuneration arrangement (OpRA), special rules apply and the Class 1A NICs are calculated as a percentage of the relevant amount.

Certain conditions must apply before Class 1A NICs are due. These conditions are that the:

• benefit must be from, or by reason of, an employee's employment and must be chargeable to Income Tax under ITEPA 2003 on an amount of general earnings as defined at Section 7(3) ITEPA 2003;
• employment must be 'employed earner’s employment' under social security law and employment as a director or an employee;
• benefit must not already attract a Class 1 NICs liability.

There is a statutory exemption for qualifying trivial benefits in kind costing £50 or less in kind. The tax-free exemption applies to small non-cash benefits like a bottle of wine, or a bouquet of flowers given occasionally to employees or any other BiK classed as 'trivial' that falls within the exemption. An annual cap of £300 is applicable for directors or other office-holders of close companies and to members of their families or households.