Things become rather complicated once you begin employing other people. At this point there are two separate types of National Insurance contribution that must be paid - one by the employee and one by the employer.
Both are based on Class 1 contributions – primary for employees and secondary for employers the amounts payable are directly related to the employee's salary.
It's important to note that in this case, 'salary' refers to all gross earnings, including actual salary, overtime payment, commissions, bonuses, convertible assets given to employees and funded unapproved retirement benefit schemes. In other words, just about anything of monetary value that's awarded to an employee, for whatever reason.
For employees, the amount payable is 11% of income, although this only applies to amounts above £97 per week and below £645 per week. On a yearly basis, these thresholds stand at £5,035 at the lowest end of the scale, to £33,540 as the upper earning limit.
These equate to roughly the same upper and lower limits as for the self-employed, but are calculated on a weekly basis for greater accuracy. No contributions are made by employee or employer if earnings fall below the primary threshold.
Furthermore, pensioners and under 16s pay no National Insurance, while married women can pay a reduced amount of 4.85%. Class 1 contributions payable on earnings above the upper earning limit is at a rate of 1%.
The employer is hit slightly harder, having to pay 12.8% on all the employee's total earnings above the primary threshold, including all earnings above the upper earnings limit.
Employees don't have to fill in any forms relating to their National Insurance contributions; that's handled automatically based on their income. For employers, the important form is P11 – the deductions working sheet, which shows how you have reached your payment calculations. Form P14 is used for the end-of-year summary.
This contains details of all expenses payments, benefits and National Insurance contributions relating to your employees.
Payment of NICs are made along with income tax to the Inland Revenue Accounting and Payment Services. The day your payment needs to reach them depends on the payment method you use.
If you pay electronically, your payment is due on the 22nd of the month, or 19th of the month if not.
