Employers are obliged to pay National Insurance contributions on both the salaries and benefits paid to their employees. Benefits which make up part of earnings and are liable to contributions may include the provision of company cars and medical insurance.
The employer is responsible for deducting both income tax and National Insurance contributions from salaries paid to employees. The deductions are disbursed each month to HM Revenue and customs. Apart from the employee’s own contributions, the employer pays the employer National Insurance contribution, a cost to the employer over and above the gross salary paid to the employee.
There are six classes of NICs. Class 1 are paid by individuals through the employer and by employers themselves, Class 2 by self-employed individuals, Class 3 are voluntary contributions by individuals and Class 4 are paid by self-employed individuals as a percentage of profit.
The classes which apply to employers are Class 1A and Class 1B .
Class 1. These payments are collected by the employer and paid through the PAYE system. The employer contribution is calculated as a percentage of employee earnings over a certain amount. It is also applied to a number of benefits provided to employees. There are a vast number of Class 1 categories applying to employees in various circumstances. A special calculation applies to directors.
Class 1A. These payments are paid by employers and others on benefits provided to employees.
Class 1B contributions are paid by employers who have agreed on a PAYE Settlement Agreement with HM Revenue and Customs. They are calculated on the combined value of the items covered by the agreement and the tax payable by the employer under that agreement. These contributions are paid at the same rate as Class 1A but do not provide any benefit entitlement to individual employees.
Employers National Insurance Contributions Calculation and Filing
Within each class there are numerous categories of contributions and the rates for these are published in electronic table form by HMRC.
The employer is responsible for allocating the correct table to each employee depending on a number of criteria. The rate payable by employer and employee is defined by the appropriate table.
The main responsibility of the employer is to deduct employee Class 1 contributions through the payroll, to pay employer Class 1A contributions following the end of the tax year on benefits provided to employees and, if a PAYE Settlement Agreement has been signed, to pay employer Class 1B contributions after the end of the tax year.
The system has been streamlined in recent years with the introduction of PAYE Online. Most filing with the HMRC can be done via this system.
In addition to the responsibilities outlined above, almost all employers are required to file and Employer Annual Return online. Online forms must also be filed when an employee enters or leaves employment, when a new employee begins but has no P45 form from a previous employer, when the employer begins paying a new pension or annuity and for filing details of certain categories of employees seconded to work in the UK.