If you’re new to running your own company and employing people you might not be clued up on National Insurance Contributions (NICs), and how much you’ll need to pay.

In this blog we take a closer look at what NICs are and what you need to be aware of as an employer in the UK.

What are NICs?

NICs are payments made by individuals and employers in the UK to fund various services and state benefits. NICs are a form of social security tax, as they contribute towards the National Insurance (NI) system, which is designed to provide financial support to those individuals who may be unemployed, unable to work due to sickness, the state pension, job seekers allowance, employment support allowance, the NHS or retirement.

There are different classes of National Insurance Contributions, and which class you’ll pay will depend on the individual’s employment status and earnings.

How do you calculate your employees’ National Insurance?

All your employees will have a National Insurance category letter (A, B, C, H, J, M, V, Z), which you’ll need to use when submitting their payslips and processing your payroll. This letter will help you understand the total amount you’ll need to contribute per employee, and it’ll be your payroll manager / accountant’s job to determine your employee’s National Insurance category letter. Your employee’s letters will depend on their professional situations and age, which mean the following:

Category A: All others who do not fall into the following categories are in category A

Category B: Married working women and widows are entitled to pay reduced National Insurance

Category C: Refers to those employees who are over the current State Pension age

Category H: Refers to apprentices ages 25 and under

Category J: If an employee has another job and pays their National Insurance through that job, they are able to defer their NICs under your employment

Category M: Is for employees that are under the age of 21

Category V: Employees who are working in their first job since leaving the armed forces (veterans)

Category Z: Is for employees ages under 21 who defer their NICs as they’re paying it through other employment

Your responsibilities as an employer

You must deduct your employee’s NICs under Class 1 Primary threshold Contributions (PT) from their earnings. You must then pay this amount to HMRC. In addition to this amount you as the employer must also pay employers NI, also known as Secondary threshold Contributions (ST) on your employees’ earnings.

You’re required to keep records of these deductions and contributions, as they will form an important part of filing their yearend returns.

If you use payroll software you’ll be provided with reports that’ll allow you to show this information. Your accountant will also be able to help you with this. The employer payment record is known as the P32, and it summarises the total amounts you’ll need to pay to HRMC on a monthly or quarterly basis. This amount will include tax (PAYE) and NICs.

If your employee isn’t paying NI you’ll still need to send this information to HMRC, as it’ll keep their NI record updated with credits. If their record isn’t updated then the employee may not be eligible for the full state pension.

As an employer you’re also required to provide your employees with a P60, showing the NICs payable by them each tax year.

Class 1A contributions

As an employer you’re also required to pay Class 1A contributions on most taxable benefits and expenses. These details must be included on From P11D(b) and submitted by July 6 following the end of each tax year.

All Class 1A contributions must be paid to HMRC by July 22 following the end of the tax year, and by July 19 if you’re paying by post.

Class 1B contributions

If any of your employees have a PAYE Settlement Agreement (PSA) in place, then you’ll need to also pay Class 1B contributions. Ask your accountant to calculate the contributions on items included within any PSAs, as they are different contributions to Class 1As.

All Class1B contributions must be paid to HMRC by October 22 following the tax yearend, or July 22 if paying by post.

What is the NIC threshold?

When paying Class 1 NICs relevant to employers and employers, there are six different thresholds. Employers must pay NICs on any earnings above the secondary threshold with the exception of employees aged under 21, or apprentices aged under 25.

Class 1 NIC thresholds 2023/24	Monthly	Weekly
Lower Earnings Limit	£533	£123
Primary Threshold	£1,048	£242
Secondary Threshold	£758	£175
Upper Earnings Limit	£4,189	£967
Upper Secondary Threshold	£4,189	£967
Apprentice Upper Secondary Threshold	£4,189	£967

 

How much National Insurance will you need to pay as an employer?

Your employee’s salary and NI category letter will determine how much you’ll have to pay in Class 1 NICs.

Income (monthly)	Class 1 secondary rate
Rate Above the secondary threshold – £758	13.8%
Rate below Upper Secondary Threshold	0%

 

Employees aged under 21 and apprentices aged under 25 are exempt from Class 1 NICs, unless they earn £4,189.01 or more per month. In this case the employee will need to pay employee Class 1 NICs, so there could still be an amount to pay to HMRC. Your accountant will be able to advise you on this. This is a benefit to the employer only.

Employment Allowance

As an employer you’re able to reduce your National Insurance by up to £5,000 per year (2023/24 rates), so long as your business is small and has a total NIC bill of less than £100,000.

This allowance is made available as a credit against future contributions payable, and is claimed using the Employer Payment Summary (EPS). If you’re preparing your own payroll, when sending the EPS you must remember to mark the employment allowance indicator.

National Insurance can be complicated!

Understanding your own tax can be tough, let alone when you’re having to sort out your employees’ also! That’s where Vantage Accounting come in. Our team of specialist and dedicated accountants are well rehearsed in supporting companies with employees’ tax requirements, and can crunch all the numbers, leaving you feeling confident that the tax man is getting what he’s owed (and not a penny more). Get in touch with our team to find out more about how we can help you.