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Employees
Class 1 national insurance
contributions (NICs) are paid on employees' earnings, usually by both the employee and
employer. NICs are payable on all gross earnings, including salary,
overtime, commissions and bonuses, on readily convertible assets given to
employees, employees' liabilities paid by employers. Employers’ payments to
employer-financed retirement benefits schemes (formerly FURBS) from 6 April
2006 are not liable to NICs. Employers’
Class 1A NICs are payable on all taxable benefits-in-kind.
Employee NICs are payable at 11%
of income above £97 up to £645 per week (£5,035 to £33,540 per year) and 1%
of income above this limit. Earnings from £84 per week count towards
contributory benefits. Employees over state pension age or under 16 do not
pay NICs.
The employer NIC rate for 2006/07 is 12.8 % on all earnings above £97 a week
(£5,035 a year).
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Class 1 Employees (not contracted
out of S2P)
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2005/06
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2006/07
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Earnings
pw
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Earnings
pw
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Employees
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First
£94
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nil
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First
£97
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nil
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£94 to
£630
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11%
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£97 to
£645
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11%
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Excess
over £630
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1%
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Excess
over £645
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1%
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Employers
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First
£94
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nil
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First
£97
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nil
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Balance
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12.8%
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Balance
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12.8%
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Self-employed
Class 2 NICs are flat-rate contributions of
£2.10 a week (£109.20 a year) where a person's self-employed earnings are
over £4,465 a year.
Class 4 NICs are based on taxable
business profits for the year. For 2006/07 they are chargeable at a rate of
8% on profits between £5,035 and £33,540 and 1% on profits above this.
Class 4 NICs are not payable by self-employed people over state pension age
or under 16 years.
Voluntary
Class 3 NICs are voluntary flat-rate NICs
payable by individuals who would otherwise fail to qualify for retirement
pension and certain other benefits because they have an insufficient Class
1 or Class 2 contribution record. The flat rate is £7.55 a week (£392.60 a
year).
Contracting out of S2P
If the employer has
contracted the employee out of the State Second Pension (S2P), the NIC
rates are reduced.
- The
reduction applies to the NICs on earnings up to £645 a week.
- The
employee's reduction is 1.6% for both salary-related and money
purchase schemes. The
employer's reduction is 3.5% for salary-related schemes. For
money-purchase schemes the employer's reduction is 1%, but an
additional age-related payment is made to the schemes by the National
Insurance Contributions Office.
- A
rebate equal to the employer's and employees' NIC rate reductions is
given on earnings between £84 and £97 a week.
If the employee contracts out
using an appropriate personal or stakeholder pension scheme, the full NIC
rates are payable and the National Insurance Contributions Office pays a rebate
to the pension provider of the employee's choice.
The rebate is a percentage of earnings between £84 and
£645 a week. The percentage increases with age to an upper limit. For
personal pensions and stakeholder pensions a different level of rebate applies
to each of three earnings bands.
The Dyer Partnership, 17 Westminster Court,
Hipley Street,
Old Woking, Surrey GU22 9LG
Copyright © 2002 - 2006 The Dyer Partnership
Limited
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