Knowledge of NICs matters is vital, whether you are an employer or an employee, employed or self-employed.
HMRC have wide anti-avoidance legislation and enforcement powers available to them. Therefore, it is important to seek professional advice, so that all compliance matters are properly dealt with.
If your business is in Bromley, Kent and London areas, we would be delighted to advise on any National Insurance compliance matters. So please contact us at Adiva Accountants London for further advice.
The NICs liability for a self employed is lower than for an employed individual with profits of an equivalent amount. So, there is an incentive to claim to be self-employed rather than employed.
Are you employed or self-employed?
This can be a complex area and there may be many situations where the answer is not that clear.
If the following factors apply to you, it is possible that you are employed rather than self-employed:
- the ’employer’ is obliged to offer work and the ’employee’ is obliged to accept it
- a ‘master/servant’ relationship exists
- the job performed is an integral part of the business
- there is no financial risk for the ’employee’
Please seek professional advice as early as possible and in any case prior to obtaining a written ruling from HMRC.
When HMRC discovers that someone has been wrongly treated as self-employed, they will re-categorise them as employees. In these circumstances, HMRC are likely to seek to recover arrears of NI contributions from the employer.
Enforcement, penalties and interest
In order to identify and collect arrears of NICs, HMRC carry out compliance visits. HMRC may ask to see the records supporting any payments made.
Additional NICs that may be due for both current and prior years can be demanded by HMRC. These arrears may be subject to interest and penalties.
The Employment Allowance can be offset against the employer Class 1 NIC liability. The amount of the Employment Allowance was £2,000 for 2014/15 and 2015/16 and has increased to £3,000 for 2016/17. This allowance is available to many employers.
There are some exceptions for employer Class 1 liabilities including liabilities arising from:
- a person who is employed (wholly or partly) for purposes connected with the employer’s personal, family or household affairs
- the carrying out of functions either wholly or mainly of a public nature (unless charitable status applies), e.g. NHS services and General Practitioner services
- employer contributions deemed to arise under IR35 for personal service companies.
The employment allowance is limited to a total of £2,000 (£3,000 for 2016/17), where there are ‘connected’ employers. If one company controls the other company, then the two companies are connected with each other.
The allowance is claimed as part of the payroll process. The employer’s NIC liability is not payable until the Employment Allowance limit of £3,000 for 2016/17 has been reached.
Employment Allowance recent changes
From April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.
Contributions payment deadline
The Class 1 NI contributions are payable at the same time as PAYE. Class 1A contributions are by 19 July (22nd for cleared electronic payment) after the tax year in which the benefits were provided.
So, it is important to distinguish between earnings and benefits.
Earnings
The Class 1 earnings will not always be the same as those for income tax. Earnings for NI purposes include:
- salaries and wages
- bonuses, commissions and fees
- holiday pay
- certain termination payments
There can be issues in relation to the treatment of:
- expense payments
- benefits
If expense payments are specific payments in relation to identifiable business expenses, they will generally be outside the scope of NI. However, round sum allowances give rise to a NI liability.
In general benefits are not liable to Class 1 NICs. However, there are some important exceptions including:
- most vouchers
- stocks and shares
- other assets which can be readily converted into cash
- the payment of an employee’s liability by an employer
Directors
As directors are employees, they must pay Class 1 NICs. However, directorships can create various NICs problems. For example:
- directors may have more than one directorship
- directors’ fees and bonuses are subject to NICs when they are voted or paid, whichever is the earlier
- overdrawn directors’ loan accounts can give rise to a NICs liability
We can advise you in any specific circumstances.
If you are an Employer in Bromley, Kent and London areas, and want to claim the Employment allowance, please contact us at Adiva Accountants London for further advice.
The self employed
NICs are due from the self-employed as follows:
- Flat rate contribution (Class 2)
- Amount based on the taxable profits of the business (Class 4)
Class 2 NIC used to be collected by direct debit. But from 6 April 2015, the liability to pay Class 2 NIC arises at the end of each year, and is collected as part of the final self assessment payment.
The amount of Class 2 NIC due is calculated based on the number of weeks of self-employment in the year. The rate of Class 2 NIC is £2.80 per week for 2015/16 and 2016/17. Class 2 NIC will be paid alongside the income tax and Class 4 NIC.
For those with profits below a threshold (£5,965 in 2016/17) no longer have to apply in advance for an exemption from paying Class 2 NIC. If they want to protect their benefit rights, they have the option to pay Class 2 NIC voluntarily at the end of the year.
From April 2018, the government will abolish Class 2 NIC.
For tax year 2015/16, Class 4 is payable at 9% on profits between £8,060 and £42,385 (in 2016/17 between £8,060 and £43,000). Additionally, there is a further 2% on profits above £42,385 (in 2016/17 above £43,000).
Voluntary contributions
Flat rate voluntary contributions are payable under Class 3 of £14.10 per week for tax years 2015/16 and 2016/17. These contributions give an entitlement to basic retirement pension. If someone is not liable for other contributions, may pay Class 3 in order to maintain a full NICs record.
The Class 3A Voluntary National Insurance
For the people who reach State Pension age before 6 April 2016, a new class of voluntary NIC (Class 3A) has been introduced. This gives an opportunity to boost their Additional State Pension by topping it up by up to £25 per week.
The amount of the contribution depends on the age and sex of the individual. Please clink on the following link to find a useful calculator to determine the cost of contributions to be made. www.gov.uk/state-pension-topup
Class 3A NIC can be made from 12 October 2015 up to 5 April 2017.
If you are self employed and need help with NICs, please contact us at Adiva Accountants London for further advice.
Employees
Employees are liable to pay Class 1 NIC on their earnings. Additionally, a further secondary contribution is due from the employer.
For tax year 2016/17 employee contributions are only due when earnings exceed a ‘primary threshold’ of £155 per week (£8,060 a year). The amount of NIC payable is 12% of the earnings above £155 up to earnings of £827 a week (£43,000 a year) the Upper Earnings Limit (UEL). Additionally, there is a further 2% NIC charge on weekly earnings above the UEL. Secondary contributions (Employers NIC) are due from the employer of 13.8% of earnings above the ‘secondary threshold’ of £156 per week for 2016/17 (£8,112 a year). However, there is no upper limit on the employer’s contributions, so 13.8% is paid on everything above £156 a week.
Under 21s Employer NIC
For those under the age of 21, the employers NIC are reduced from the normal rate of 13.8% to 0%. However, the above exemption will not apply to earnings above the Upper Secondary Threshold (UST) in a pay period. The UST is set at the same amount as the UEL. This is the amount of pay at which employees’ NIC fall from 12% to 2%. The weekly UST is £827 a week (£43,000 a year) for 2016/17. So, the employers will be liable to 13.8% NIC beyond this limit. However, the employee will still be liable to pay employee NIC.
Apprentices under 25 NIC
From 6 April 2016, the same as for under 21s, employer NICs are 0% for apprentices under 25 who earn less than the upper secondary threshold (UST) which is £827 per week (£43,000 a year). On pay above the UST, employers are liable to 13.8% NIC. Employee NICs are payable as normal.
An apprentice needs to:
- be working towards a government recognised apprenticeship in the UK which follows a government approved framework/standard
- have a written agreement, giving the government recognised apprentice framework or standard, with a start and expected completion date.
In order to identify the apprentices, the employers need to assign them NIC category letter H. This ensures that the correct NICs are collected.
When the apprenticeship ends, or the employee turns 25, the employer needs to ensure that they amend the contributions letter.
Benefits in kind
If the employers provide benefits such as company cars for employees, they have a further NIC liability under Class 1A. Contributions are payable on the amount charged to income tax as a taxable benefit.
Most of the benefits are subject to employer’s NI. The current rate of Class 1A for the benefits provided is the same as the employer’s secondary contribution rate of 13.8%.
If you need help with NICs, please contact us at Adiva Accountants London for further advice.
The National insurance contributions (NICs) regime is quite complex. It represents a significant ‘tax’ on employers, employees and the self employed alike. If your business is in Bromley, Kent and London areas we, at Adiva Accountants London, can help you on NICs and any other problems.
National insurance contributions (NICs) are essentially another tax on earned income. Income is divided into different classes: Class 1 contributions are payable on earnings from employment. While the profits of the self-employed are liable to Class 2 and 4 contributions.
After the income tax the national insurance is the largest source of government revenue. We will cover below the areas you need to consider and identify some of the potential problems. Please contact us at Adiva Accountants London for further specific advice.
So, if you are struggling to keep up-to-date with paperwork, consider doing what you can, and hire us to do your bookkeeping on a regular basis.
If your business is in Bromley, Kent and London areas we would be delighted to help you do the bookkeeping, so please contact us at Adiva Accountants London.
If you run a limited company, even if you own it 100%, the business’s money is not your own. As a director, unless they are a legitimate business expense, you can’t spend the company’s money on your own personal expenses.
As a self employed person, you take drawings from your business, but you should still keep a separate bank account. So, keep your accounts clean by keeping your personal finances separate from the business ones.
- Check bank statements
You should spend time checking your bank statement every week or at least once a month. This will not only alert you of fraud or a mistake by your bank. But will give you a better understanding of where you are spending the money. All successful businesses have great credit control and spend their money smartly. So, make this a habit from day one.
- Put time aside to do your bookkeeping regularly
When you start your first business, you are so busy that you would often do your bookkeeping late. That is not good, as if you’re tired simple tasks will take longer, and you’re more likely to make mistakes as well.
So, if you need to do bookkeeping outside of working hours when you could be earning money, then why not consider letting us handle this burden for you.
If you still want to do the bookkeeping yourself, you may find that using a suitable accounts software package takes much of the trouble away. We highly recomend KashFlow online accounts system, which you can access anytime and anywhere. This is very helpful for a busy new business owner.
- Get help with your finances
This is an area where you shouldn’t save on professional help. If from the beginning you get the finances right, it will save you money and trouble on the long run.
- Cash book
These are the payments into and out of your bank account. If you keep it up-to-date, after a few months you’ll be able to use it as a forecasting tool, rather than just a historical record.
- Sales invoice file
If you use an accounting package to do your bookkeeping, you can use it to issue and store invoices. However, if you do the invoices manually using Word, or other program keep a record on file. You should store your invoices in chronological order. To help your credit control, you should keep the invoices which haven’t yet been paid at the front of the file.
- Purchase invoice file
It would be useful to make notes on invoices about when you paid them and how (BACS, cheque, cash etc). Youi should file them in chronological order. This will make your life easier when you need to find information.
- Get an invoice or receipt for everything you buy
The longer you are in business, the higher are the chances of a VAT or tax investigation by HMRC. You don’t have to worry about them as long as you have a professional accountant like Adiva Accountants London on your side. Obviously you have to keep all your paperwork too.
You should get into the habit of keeping a piece of paper for every transaction you make. So, if you buy something online always print off the invoice. It’s always easier to collect invoices as you go along, than to try to find them many years later.
If your company in Bromley, Kent and London areas requires a bookkeeping service, why not contact us today at Adiva Accountants London.
Not many people who start a new business are keen to do all the paperwork. Nobody’s idea of fun involves spending time adding up and recording receipts or invoices. Unfortunately, it’s a necessary evil and something you need to do to be able to stay on top of your new business. So, being disorganised and putting off paperwork just isn’t an option. Unless you let Adiva Accountants London do bookkeeping for you. If you’re late getting essential information to HMRC, they will fine you. And it will get worse, the longer you leave it. Also, being on top of your book-keeping will help you control the cash flow of your business.
Adiva Accountants London provide a full bookkeeping service to businesses throughout Bromley, Kent, London and nationwide. Please do not hesitate to contact us at Adiva Accountants London.
Every business should manage their bookkeeping properly. Bookkeeping involves recording the financial transactions such as sales, receipts and payments.
We can create income statements and balance sheets for your business in line with government requirements. Bookkeeping information is needed for creating financial statements for the business in the main areas:
- Income Sheet
- Balance Sheet
- Cash Flow Statement
- Statement of retained earnings
If your company in Bromley, Kent and London requires a bookkeeping service, why not contact us today at Adiva Accountants London. We will be happy to show how bookkeeping service offers a perfect way to manage your business and to keep it profitable too.
