Employer responsibility for tax and NICs

UK employers have a statutory responsibility to calculate, deduct at source, account for, and pay to HMRC both Schedule E income tax due from their employees under the Pay As You Earn (PAYE) Scheme and the appropriate National Insurance contributions (NICs).

National Insurance contributions

Class 1 consists of two parts – the employer’s and the employee’s contribution. The employee’s payment is deducted from pay and paid to HMRC together with the employer’s contribution. Every employee aged between 16 and the State Pension age, and earning more than the Primary Threshold of £155 per week, is liable to pay NICs.

Class 1 NICs are calculated from gross pay, which includes salaries, overtime, bonus payments and commission plus any variable additional payments (e.g. Statutory Sick Pay or Statutory Maternity Pay).

Reporting PAYE in real time

HMRC requires employers to report PAYE information in real time: each time an employee is paid, the employer must submit online the amount paid, deductions and, if applicable, the start or leave date. This is referred to as Real Time Information or RTI and details can be found under ‘PAYE in real time’ at www.hmrc.gov.uk.

Payslip

Every time employees are paid they are entitled to a printout or similar record of their gross pay for the period and the deductions made from it.

Definitions

The Primary Threshold is one of three levels of earnings used to calculate the correct NICs. These are not the PAYE tax thresholds or personal allowance (the levels of earnings at which income tax becomes payable).

The Lower Earnings Limit (£112 per week or £5,824 annually) is the minimum level of earnings to qualify for benefits such as Retirement Pension and Jobseeker’s Allowance. If earnings reach or exceed this level, but do not exceed the Primary Threshold (£155 per week, £8,060 annually), employees do not pay NICs but will be treated as having paid them when claiming benefit.

Employees who earn between the Primary Threshold and the Upper Earnings Limit (£815 per week or £42,385 annually) pay National Insurance Class 1 contributions at 12% of the amount between £155 and £815 a week. Employees who earn more than £815 a week also pay 2% NICs on additional earnings.

Gross pay – used to work out Class 1 NICs – includes salaries, overtime, bonus payments and commission plus any variable additional payments (e.g. Statutory Sick Pay or Statutory Maternity Pay).

Full details are at www.hmrc.gov.uk which includes booklet E12 PAYE, NICs Rates and Limits, and the NI Tables issued to employers. Booklet CA44 explains how NICs should be calculated for directors.

Article 92 provide more details on employers’ responsibility for employees’ tax and National Insurance.