As an employer, UK National Insurance is a tax that is paid based on the amount you pay your employees and National Insurance Contributions (NICs) go into a state pot, which is used to fund certain state benefits and public sector services.
As an employer, UK National Insurance is a tax that is paid based on the amount you pay your employees and National Insurance Contributions (NICs) go into a state pot, which is used to fund certain state benefits and public sector services.
While NICs are also paid by employees and self-employed individuals, this guide focuses on how much National Insurance you – as an employer – must pay as a business on behalf of your employees.
How to calculate your employees’ National Insurance
For each of your full or part-time employees, you will have a National Insurance category letter which you should use when submitting payslips and handling your payroll. This helps you to calculate how much you must contribute for each employee. Many employees are in category A. However, there are additional categories that your employees may be placed in depending on their individual situation, including:
- Category B
Married working women and widows entitled to pay reduced National Insurance. - Category C
Employees over the current State Pension age. - Category J
Employers allowed to defer NICs because they are paying it through another job e.g. self-employed income. - Category H
Apprentices under the age of 25. - Category M
Employees under the age of 21. - Category Z
Employees under the age of 21 that can defer NICs because they are paying it through another job.
Your National Insurance duties as an employer
As an employer, you have a duty to deduct primary Class 1 contributions from employees’ earnings on their behalf – these are also known as employees’ contributions.
In addition, employers must pay secondary Class 1 contributions on their employees’ earnings.
You must also pay Class 1A contributions on most taxable benefits and expenses. These are only paid by the employer.
If any of your employees have a PAYE Settlement Agreement (‘PSA’) in place, you must pay employer-only Class 1B contributions instead of the Class 1 or Class 1A contributions which would otherwise be due.
You must pay both primary and secondary contributions over to HMRC in full and on time when you make your Pay As You Earn (‘PAYE’) payments each month (or quarter as appropriate).
You must keep a record of the contributions deducted from each employee and file year end returns for each of them.
Details of Class 1A contributions relating to benefits and expenses must be returned on Form P11D(b) by 6th July following the end of the tax year.
Class 1A contributions must then be actually paid to HMRC by 22nd July following the end of the tax year if they are paid electronically, otherwise the deadline is 19th July.
Class 1B contributions must be calculated on items included within any PSAs your employees may be subject to.
Class 1B contributions must be paid to HMRC by 22nd October following the end of the tax year if they are paid electronically, otherwise the deadline is 19th October.
You must provide each employee with a P60 showing the National Insurance contributions payable by them by 31st May after the end of the tax year.
What is the National Insurance threshold?
There are six thresholds for paying Class 1 NICs relevant to employers and employees. Employers pay NICs on earnings above the secondary threshold with the exception of employees under 21 or apprentices under 25.
| Class 1 NIC thresholds | Bands for 2021/22 tax year |
|---|---|
| Lower earnings limit | £120 per week £520 per month £6,240 per year |
| Primary threshold | £184 per week £797 per month £9,568 per year |
| Secondary threshold | £170 per week £737 per month £8,840 per year |
| Upper secondary threshold (under 21s)
(Employers of employees who are under 21 pay zero rate up to this point) |
£967 per week £4,189 per month £50,270 per year |
| Apprentice upper secondary threshold (under 25s)
(Employers of certain apprentices who are under 25 pay zero rate up to this point) |
£967 per week £4,189 per month £50,270 per year |
| Upper earnings limit | £967 per week £4,189 per month £50,270 per year |
How much NI does an employer pay?
How much an employer pays in Class 1 NICs depends on their employees’ salary and their NI category letter:
Employers should be aware of the employment allowance, which enables some business owners to minimise the amount of employer NICs payable – up to the allowance limit of £4,000 per year. This reduction is available exclusively to small businesses with total NIC bills of less than £100,000.
Employees under the age of 21 and apprentices under the age of 25 are exempt from employer Class 1 NICs, unless they earn £4,189.01 a month or higher.
Need help with National Insurance?
If you are employing staff for the first time, we can work with you alongside our partners to help you negotiate the employment law and ensure you are doing everything by the book.
If you still require clarification on your National Insurance situation from a qualified and trustworthy professional, we will be happy to help with your bookkeeping or payroll. We can go through your employees’ salaries and benefits income to work out the appropriate NICs for you.
For a free initial consultation, call our friendly and experienced team today on 0203 8276 333 or use our online enquiry form.