Employer's National Insurance Contributions

[Fuzzy]

Probably about as 'off topic' as you can get.

Anyone have a good understanding of Income Taxation and National Insurance?

I know someone (not me, I'm self employed!

) who is paying more income tax (as a percentage) than a fellow employee, and also more National Insurance (again, as a percentage of their earnings). As a result, their employer is also paying a larger percentage of NI contributions.

I believe this person has previous 'history' with the Inland Revenue and I'm wondering if HMRC are now trying to 'catch up' on previously unpaid income tax by hiking up their tax rate now - does that happen?

Also, does anyone know if Employer's National Insurance contributions are based on the employee's income tax paid, or their gross earnings, or a combination of the two?

In short, what I'm asking is: If HMRC are now taking more tax than normal to try and recuperate previous unpaid taxes, does this in turn increase the Employer's National Insurance Contributions?

Fuzzy2014-11-06 10:03:28

 

[Alpha1]

I know that does happen, as they upped mine last year to a different code as I under paid my tax the year before so they took it out of each months pay.

 

[Alpha1]

As for the Employers NI contribution - I have no idea on that part.

 

[tronads]

tell them to bung their gross salary to date on here http://www.listentotaxman.com/

 

[Fuzzy]

Cheer's Oll. Well, that's half my question answered.

Just need to find out if this affects Emp NI now.

 

[Fuzzy]

tell them to bung their gross salary to date on here http://www.listentotaxman.com/

Thanks tronads. That worked a treat.

In short, they are paying the correct amount of tax and their Employer is paying the correct amount of Emp NI.

 

[simonden]

Anyone have a good understanding of Income Taxation and National Insurance?

yes it is part of my day job.

who is paying more income tax (as a percentage) than a fellow employee,

fair enough, probably due to personal circumstances, such as having children or underpayment of previous tax or differing benefits or other income such as rental income, etc.... tax is personal to each individual and you should not compare one persons tax to another.

and also more National Insurance (again, as a percentage of their earnings).

completely irrelevant to link to tax, regardless of what recent governments have tried to do they are still separate.

I believe this person has previous 'history' with the Inland Revenue and I'm wondering if HMRC are now trying to 'catch up' on previously unpaid income tax by hiking up their tax rate now - does that happen?

yes for Income Tax, happens to majority of people, even if they don't know it.

Also, does anyone know if Employer's National Insurance contributions are based on the employee's income tax paid, or their gross earnings, or a combination of the two?

Neither - it is based on NIable Earnings, which takes into account various things including the types of benefits each employee has (some are subject to NI, some are exempt). The percentage that each employee pays is also dependent on certain things such as the type of pension scheme each employee has (although this is changing), whether they are a married woman born prior to a certain date, etc... The employer is just given a code to apply the correct percentage versus NIable earnings for that employee from that company. see here for various percentage codes: http://www.hmrc.gov.uk/nic/letters.htm

In short, what I'm asking is: If HMRC are now taking more tax than normal to try and recuperate previous unpaid taxes, does this in turn increase the Employer's National Insurance Contributions?

NO - tax has nothing to do with NI and unpaid employee NI is between the employee and the HMRCNICO. You should only ever get this if an employee was previously self-employed and not paid their NI. Companies are obliged to pay the correct amount immediately with severe penalties if they don't.

*Edited for formatting.

simonden2014-11-06 11:06:54

 

[cosine]

NO - tax has nothing to do with NI and unpaid employee NI is between the employee and the HMRCNICO. You should only ever get this if an employee was previously self-employed and not paid their NI. Companies are obliged to pay the correct amount immediately with severe penalties if they don't.

This explains a lot, my dad was self-employed for years, but was contracted to the same firm for years. The firm then decided to employ him (due to a change in law I believe??), and he would always complain about the amount of NI he was paying

You learn something new every day.

 

[simonden]

The firm then decided to employ him (due to a change in law I believe??)

That was some years ago, from memory (although I may be wrong as it was a long time ago), that was down to a self-employed person who worked for the same company doing the same job for many years and then the company let them go and they took them to tribunal or court saying they was in effect an employee and should get redundancy payment. The ruling was something like, if they are only working for one company for a period of time, and/or being provided tools to do the job, then they were in effect an employee (and likewise should be treated as an employee for tax/NI).

 

[Hitesh]

My day job too.

Simonden is correct

HMRC can clawback tax you have underpaid by changing the tax codes.

HMRC cannot do anything with National Insurance. Based on someones earnings and age, National insurance is payable.

Percentages will not work out due to free pay on tax and limits on NI.

Make sense?

 

[guddler]

That was some years ago, from memory (although I may be wrong as it was a long time ago), that was down to a self-employed person who worked for the same company doing the same job for many years and then the company let them go and they took them to tribunal or court saying they was in effect an employee and should get redundancy payment. The ruling was something like, if they are only working for one company for a period of time, and/or being provided tools to do the job, then they were in effect an employee (and likewise should be treated as an employee for tax/NI).

So they're the buggers that made the government come up with IR35 !! Bar stewards

OK, I'm sure it's not exactly the same thing, as it sounds like slightly different reasoning, but people like that won't have helped.

 

[simonden]

So they're the buggers that made the government come up with IR35 !! Bar stewards

OK, I'm sure it's not exactly the same thing, as it sounds like slightly different reasoning, but people like that won't have helped.

Actually I think you are right, I think it was this case that initially made the revenue/chancellor think, hold on we need to close this loophole.

 

[guddler]

Whats most annoying is the fact that they make these adjustments even when the shortfall is not due to an error by the employee. I know, a shortfall is a shortfall and it needs to be recovered but all the same it's a pain in the arse! I've been on a higher code for a while now because when I explicitly phoned them up to ask them if a benefit needed to be declared or not (or something like that, I forget now) and they said no. 'Lo and behold, a year later they changed their mind.

I asked them for a bill to just pay it off as it was hurting the amount of cash in my pocket each month but in the end it just wasn't worth it. I guess having it taken out of your tax code is like having low interest (0% interest ?) finance. But it does tend to go on forever once it's started.

 

[tronads]

Simonden/Hitesh

I'm struggling to figure out my tax situation regarding a forthcoming redundancy payment I expect to get on the 21st of this month.

I believe if I do not work until April, then I should get a decent tax rebate.

Once I get my final figures through, would one of you mind me asking a couple of questions relating to this, once I have tried to work out for myself if I am due one.

 

[Fuzzy]

Thanks simonden

In short, what I'm asking is: If HMRC are now taking more tax than normal to try and recuperate previous unpaid taxes, does this in turn increase the Employer's National Insurance Contributions?

NO - tax has nothing to do with NI and unpaid employee NI is between the employee and the HMRCNICO. You should only ever get this if an employee was previously self-employed and not paid their NI. Companies are obliged to pay the correct amount immediately with severe penalties if they don't.

*Edited for formatting.

This. Without going into too much detail, I don't think it's only their NI that they didn't pay.

 

[simonden]

This. Without going into too much detail, I don't think it's only their NI that they didn't pay.

But that is between them and the Revenue, not up to the company to pay so doesn't affect the amount of NI the employer pays. The Revenue can request for certain employee deductions through payroll, however the individual would need to speak to their payroll department (and they probably received a notification from the Revenue).