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Employer National Insurance Contributions Calculator [ 2017/18 Tax Year ]

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Employer National Insurance Contributions

As an employer, you are responsible for paying National Insurance Contributions for your employees. So, what is National Insurance and what are your exact obligations? This article advises what you need to know, in simple terms.

What is National Insurance?

National Insurance is used to pay for state pensions and some other benefits (Jobseekers Allowance, Employment and Support Allowance, Maternity Allowance, Bereavement Benefits). National Insurance Contributions are paid by the employed and self-employed and are commonly referred to as NIs or NICs.

Though it is called a 'contribution', it is in fact compulsory. You don't have to have paid into the system to realise some of the benefits listed, but must pay into the system if you are aged 16 years old, up to retirement age and are employed or self-employed. Each person is issued with a unique National Insurance number.

There are 4 classes of National Insurance:

  • Class 1 NIC - Employee contributions. Further explanation is set out below.
  • Class 2 NIC - Self-employed contribution
  • Class 3 NIC - Voluntary
  • Class 4 NIC - Self-employed people earning profits over £7,956

Class 1 Contributions

Class 1 primary: Employers must deduct contributions from employees gross pay (money earned before any tax or other deductions are taken) for those aged 16 and over (up to pensionable age), who earn £153 and over per week. Class 1 contributions are paid at the rate of 12% of weekly earnings for employees earning between £153 and £805. 2% is the rate paid for any earnings over £805.

Class 1 secondary: Employers must pay this contribution themselves, for their employees. These are payable on employee earnings and the current rate is 13.8% for earnings of £153 and over. They are in addition to the employee Class 1 primary contributions.

Class 1A: This NIC is payable on 'benefits in kind' (taxable benefits), provided by an employer to an employee. Employers are responsible for paying Class 1A NICs, which are payable in the July of the following year. They are calculated at the same rate of the secondary Class 1 percentage rate, i.e. 13.8%, based on the value of taxable benefits provided in the previous tax year.

Class 1B: Unlike the other NICs, class 1B is paid annually, as part of a PAYE Settlement Agreement (PSA). This NIC is payable on unusual or one off 'benefits in kind' (taxable benefits), provided by an employer to an employee, such as a birthday present. Employers are responsible for paying Class 1B NICs, which are payable by 18th October the following year (22nd if electronically). They are calculated at the same rate of the secondary Class 1 percentage rate, i.e. 13.8%, based on the value of taxable benefits provided in the previous tax year. You can apply to HMRC in writing, describing the expenses and benefits you want the PSA to cover.

There are some exceptions which may alter National Insurance calculations, such as workplace pension schemes or child voucher schemes. These are known as salary sacrifice schemes. As an employer or employee, you can realise these benefits in your pay packet, as it increases your take-home pay.