My client took a new employee who had worked for two months with another employer before joining him.
My client will employ this individual for a couple of months paying say £1000 per month.
After taking the last employer’s pay and current projected pay this individual’s earning was below Personal Allowance limit of £10,600 (Tax year 2015 -2016)
When I ran the payroll , HMRC Basic PAYE tool asked me to deduct Class 1 National Insurance from this employee’s pay.
I was confused as I calculated that this employee’s total pay in the whole tax year will be less than Primary Threshold of £672 x 12 = £8,064
I had been calculating National Insurance contribution like Income Tax and taking the National insurance thresholds to be same as Income Tax Threshold.
I researched and once again Chartered Institute of Tax Advisor’s(CIOT) website came to rescue. It informed me that national insurance thresholds are calculated on a weekly or monthly basis (depending on the payment cycle) unlike Income Tax where thresholds are calculated on a yearly basis.
Example of Hypothetical Emily was most illuminating. Visit the below mentioned page and
Ctrl + F “Emily” to find the example.
Link to the article : http://www.taxguideforstudents.org.uk/tax-essentials/what-is-national-insurance
Thank you CIOT
Recently my colleague Neel took another client where the director was appointed during the financial year. He was processing his one salary payment as £8,424 the NIC threshold for financial year 2018-19 but tax softwares were asking him to deduct NICs. We tried in two different software same result.
We searched on the internet and came across another helpful guide by HMRC CA44. It reminded us that like employees , directors appointed mid way through the year will have their NIC threshold pro rated.