Understanding the two types of contribution you make as an employer.

 

As an employer you pay National Insurance on both your own earnings and those of your staff. These are based on Class 1 contributions and the payable amounts are calculated using the PAYE system for the employee. PAYE is applied to all the payments that an employee receives as a result of working for you, including:

• salary and wages
• bonuses and commission
• certain expenses allowances paid in cash
• Statutory Sick Pay
• Statutory Maternity, Paternity or Adoption Pay
• lump sum and compensation payments - like redundancy payments - unless they're exempt from tax
• non-cash items like vouchers, shares or premium bonds - you apply PAYE to the cash value of items like this

The amounts payable vary from year to year. For the 2011/12 period it is 13.8% of income (up from 11% in 2010/11). This only within a set threshold: above £102 per week (£5,304 per annum) and below £817 per week (£42,475 per annum). Above the upper limit Class 1 contributions are payable at a rate of 2%. If earning fall below the lower limit then no contributions need to be made.

• Pensioners and under 16s pay no National Insurance.
• Married women can pay a reduced amount of 5.85%

You as the employer have to pay 12.8% on all of an employee's total earning above the primary threshold (lower limit), including all earning above the upper earnings limit. Employees don't have any responsibility for filling out forms relating to their National Insurance contributions, it is handled automatically based upon their income.

As an Employer you need to concern yourself with the P11 form (the deductions working sheet): This shows how you have reached your payment calculations. At the end of the year you then need form P14 for the end-of-year summary.

Always ensure you make payments accurately and on-time or else you risk penalties. NIC payments are made alongside income tax to the Inland Revenue Accounting and Payment Services; you MUST be registered with PAYE before you can start making payments.

Note: If you company comprises less than 250 staff you may pay with a cheque in the post. Otherwise you must pay electronically (There are several options).

Methods of Payment

• You can make contributions using the PAYE payslip book (this should come when you register with PAYE)
• Other options are via BACS, CHAPS, direct debit, Billpay, internet or telephone bank transaction, GBS, bank giro or the post office.
• The deadline for electronic payment is the 22nd of the month.
• For non-electronic payment the deadline is 19th of the month.
  

 

 

Read more: Maintaining Records for Tax Purposes

News: Small Businesses Face Fines Over Paperwork, Small Businesses Not Using NI Scheme

See also the Paper Mountain Solutions Blog for lots of discussions about National Insurance and taxation.

 

Paper Mountain Solutions offer a number of financial solutions to assist your business. Save money by reducing your National Insurance costs by outsourcing with Paper Mountain Solutions. Get in touch with the team for a free quotation.