Things become rather complicated once you begin employing other people. At this point, you need to pay National Insurance on both your own earnings and those of your staff. Both are based on Class 1 contributions, and 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 in 2012/13, the amount payable is 13.8% of income, although this only applies to amounts above £107 per week and below £817 per week. On a yearly basis, these thresholds stand at £5,564 at the lowest end of the scale, to £42,475 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 5.85%. Class 1 contributions payable on earnings above the upper earning limit is at a rate of 2%.
The employer is hit slightly harder, having to pay 13.8% 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.
Employers also have to ensure they make payments promptly and accurately. Payment of NICs are made along with income tax to the Inland Revenue Accounting and Payment Services, and you have to be registered with PAYE before you can start making payments.
If your company comprises less than 250 staff, you have the option of paying with a cheque in the post. Otherwise, you have to pay electronically. Thankfully, there are plenty of ways you can make an electronic payment.
You can make contributions using the PAYE payslip book (this should come when you register with PAYE) as well as via BACS, CHAPS, direct debit, Billpay, internet or telephone bank transaction, GBS, bank giro or the post office.
If you pay electronically, your payment is due on the 22nd of the month, or 19th of the month if not.