ATXP6 UK
Syllabus A1. Income tax A1a. National insurance contributions for employed and self-employed persons

A1a. Class 1 and 1A NIC

Syllabus A1a)

National insurance contributions for employed and self-employed persons

NIC for the employed

There are 3 types of contributions that are payable for those who are employed:

  1. Employee’s Class 1

  2. Employer’s Class 1

  3. Class 1A

Class 1 Primary is paid by employees

For the tax year 18/19 the rates of employee class 1 NIC is 12% and 2%.

  • A rate of 0% is paid on earnings below £8,424. 
    A rate of 12% is paid on earnings between £8,425-£46,350.
    A the rate of 2% is paid on all earnings above £46,351 onwards

NIC Paid by Paid on behalf of  Limits Rates
Employee’sClass 1 Employees Employee cash earnings £0-£8,242
£8,425-£46,350
£46,351 - onwards
0%
12% 
2%

Illustration - Employee’s Class 1

Cow plc has one employee who is paid £47,000 per year.

Calculate the Class 1 NIC primary payable by the employee.

  • Solution

    Employee’s Class 1 payable:

    8,424 * 0% = £0
    £46,350-£8,424 = £37,926 * 12% = £4,551
    £47,000 – £46,350 = £650 * 2% = £13

    Total Employee’s Class 1 NIC payable = £4,564

  • Note that when you are calculating the NIC payable, you need to start paying from £8,424.Therefore, you will subtract £8,424 from £46,350 and so forth.

Employer’s Class 1 NIC is paid by employers

Employer’s Class 1 NIC is paid by employers on the employee earnings.

There is an employment allowance of £3,000 (given in the exam) available per employer to reduce the employer’s Class 1 Secondary NIC payable.

Note: this allowance is not available to companies where the only employee is the Director.

  • The rate of employer class 1 NIC is 13.8% and is paid on all earnings over £8,424 in the tax year.

    There is no higher limit for the earnings.

NIC Paid by Paid on behalf of  Limits Rates
Employer’s Class 1 Employer Employee cash earnings  £0-£8,424
£8,424 onwards
0%
13.8%  

Illustration - Employer’s Class 1

Cow plc has three employee who are each paid £45,000 per year.

Calculate the Class 1 secondary payable by the employer in 18/19

  • Solution

    £8,424 * 0% = £0
    £45,000 – £8,424 = £36,576 * 13.8% = £5,047

    £5,047 x 3 employees = £15,141
    Less employment allowance = (£3,000)

    Total Class 1 Secondary payable = £12,141

Class 1A is paid by employers

Class 1A NIC is paid by employers on behalf of the benefits provided to employees.

Note that you may have to calculate the monetary value of the benefits, and then calculate the Class 1 A NIC payable, based on the benefit's monetary value.

These explanations can be found in the topic The statutory approved mileage allowances and RTI reporting

  • The rate of employer Class 1 A NIC is 13.8%.

NIC Paid by Paid on behalf of  Limits Rates
Class I A Employer Benefits provided to employee No limits 13.8%

Illustration Class 1A NIC

Jane is employed by Cow plc and earns £25,000 per year. 

During 18/19 she received the following taxable benefits:

Car benefit £4,500
Fuel benefit £2,222
Medical Insurance £1,800

Calculate the Class 1A NIC liability in 18/19.

  • Solution

    Car benefit £4,500
    Fuel benefit £2,222
    Medical insurance £1,800
    Total benefits = £8,522

    Class 1 A NIC payable = £8,522 * 13.8% = £1,176

Illustration - Calculating monetary value of car benefit

John has been given a petrol car to use for private purposes during the tax year 2017/18.

The car has a list price of £10,000 and it has a CO2 emission of 150g.

What is the monetary value of this benefit?
What will the Class 1 A NIC payable be upon this benefit?

  • Solution 

    Calculating the car benefit:

    150g-95g = 55g/5g = 11% +20% = 31%

    31% * £10,000 = £3,100 is the monetary value of the car benefit

    Class 1 A NIC payable = £3,100*13.8% = £428