How does employers national insurance work

Class 1 primary is paid by employees, Classes 1 secondary , 1A and 1B by employers, Classes 2 and 4 by the self-employed and Class 3 is for voluntary contributions. In effect, while no NIC is paid on earnings between these two thresholds, an employee is treated as if they have made a contributory payment, which maintains their entitlement to contributory benefits.

These calculations assume income is evenly spread through the year. Employers pay secondary Class 1 NICs on employee earnings at a rate of There are various exemptions and allowances employers can claim, including exemptions for employees under 21, apprentices under 25 and, in the future, armed forces veterans and freeport employees these are subject to upper limits. This provides a flat rate deduction for businesses and charities against their annual employer NICs bill.

These amounts are all on top of the salary paid to the employee and in addition to the employee NICs mentioned above. These calculations assume income is evenly spread through the year and no special factors, exemptions or allowances apply.

In addition they may be liable to pay a separate Class 4 profits related contribution. Voluntary Class 3 contributions may be paid by individuals not liable to Classes 1 or 2 NIC to ensure that they qualify for the state pension and bereavement benefits. The earnings from employment or self-employment of individuals over state pension age are exempt from paying NICs but remain liable to income tax.

Additionally, pensions including the state pension are exempt from NICs even where an individual receives a company or personal pension below state pension age but they are liable to income tax. In then Chancellor Philip Hammond tried to close the gap with an NI rise for the self-employed but performed a U-turn after facing criticism that this would amount to breaking a manifesto pledge. Those who defend a lower rate for the self-employed generally argue that it reflects a lower entitlement to state benefits for the self-employed, however this differential has reduced in recent years.

IFS look at the arguments on pages of this note. Announcing the Self-Employment Income Support Scheme in March , Rishi Sunak told MPs: "It is now much harder to justify the inconsistent contributions between people of different employment statuses.

If we all want to benefit equally from state support, we must all pay in equally in future. Avoidance of employer NICs is one of the main drivers of misclassification of individuals as self-employed rather than employed i. Those affected miss out on employment rights such as national minimum wage, holiday pay and sick pay.

Any increase in the rate of employer NICs is likely to exacerbate this problem. The NIC system is sometimes manipulated by incorporating a business and trading through a company instead of being self-employed. As this threshold is below the personal allowance, it also incurs no income tax. Post corporation tax profits can then be withdrawn as dividend income for the sole shareholder the director , with no NICs payable.

If you have payslips showing tax and National Insurance deductions and P60 forms showing your total pay, tax and National Insurance for each tax year then you can ask HMRC to credit you with the contributions deducted from your wages. This may take some time to resolve. If you do not have payslips and the correct tax forms P60 or P45 it may be appropriate to write to your employer to formally ask for them.

If you have evidence that you are an employee, you could write to HMRC advising of circumstances and ask for confirmation that you have no liability. In extreme cases, you might need to contact the Tax Evasion line. If you do not have evidence that tax and National Insurance has been deducted from your income, or if it is unclear that you are an employee, the position may be difficult to resolve and you should take advice.

It will take only 2 minutes to fill in. Cookies on GOV. UK We use some essential cookies to make this website work. Accept additional cookies Reject additional cookies View cookies. Hide this message. Part of Get your business ready to employ staff: step by step. National Insurance rates and categories. Print entire guide. Step 1 : Decide what type of employee you need.

Check whether you need full time or part time staff Check the different types of employment status. Check how much the National Minimum Wage is You are currently viewing: Find out how much National Insurance you need to pay for your employees Check how much sick pay your employees are eligible for Check how much you need to pay towards your employee's pension Check how much Maternity Leave you need to pay your employees Check how much Paternity Leave you need to pay your employees.

Step 2 : Make your workplace safe and accessible for employees.