National insurance contributions for employed and self-employed persons: formula sheet

Key formulas

Primary Class 1 (employee)

Earnings £1 – £12,570: nil; £12,571 – £50,270: 8%; above £50,270: 2%

Figures are per year and come from the tax tables. Apply each rate only to the slice of earnings in that band.

Primary NIC for earnings above £50,270

(£50,270 − £12,570) × 8% + (Earnings − £50,270) × 2%

The first part is £37,700 × 8% = £3,016.

Secondary Class 1 (employer)

Earnings £1 – £5,000: nil; above £5,000: 15%

Charged as (Earnings − £5,000) × 15%. There is no upper limit.

Employer's total cost of an employee

Gross pay + secondary Class 1 NIC (+ Class 1A on benefits)

Employer NIC is a cost to the employer, not a deduction from the employee's pay.

Employment allowance

Reduces employer's secondary NIC by up to £10,500 a year

Used against the employer's total bill, not per employee. The allowance has its own conditions, covered in its own topic.

Class 1A NIC

Class 1A NIC = 15% × total cash equivalent of taxable benefits

Employer only. Rate of 15% is given in the tax tables ACCA provides. No threshold applies.

Company car benefit

Car benefit = list price × appropriate percentage × (months available ÷ 12)

The appropriate percentage depends on CO2 emissions and, for hybrids, electric range. Use the tax tables. Zero-emission cars are 3%.

Car fuel benefit

Fuel benefit = £28,200 × the same appropriate percentage as the car

Only applies if the employer provides fuel for private journeys. Time-apportion if available for part of the year.

Company van benefits

Van scale charge £4,020; van fuel benefit £769

Zero-emission vans have a 0% benefit. Both amounts are in the tax tables.

Payment dates

22 July after the tax year (electronic); 19 July (cheque)

P11D forms are due by 6 July. Interest on late payment runs at the rate on underpaid tax, which is 8.50% in the tax tables.

Grossed-up tax on PSA items

Tax = Value × t ÷ (1 − t)

t is the employees' marginal income tax rate. At 40% this is Value × 40 ÷ 60. At 20% it is Value × 20 ÷ 80. Use the rates given in the question.

Class 1B NIC

Class 1B = 15% × (Value of items + Income tax paid under the PSA)

Employer-only. Same rate as Class 1A. Take the rate from the tax tables in the exam.

Total cost of the PSA to the employer

Value + Tax + Class 1B NIC

Useful when a question asks for the total cost or compares with not having a PSA.

What a PSA can cover

Minor, irregular or impracticable-to-value items only

Not regular, significant benefits, and not cash payments or round sum allowances.

Employee treatment

Items in a PSA: no income tax for the employee, no P11D, no Class 1 or Class 1A NIC

Class 1B replaces the NIC that would otherwise arise.

Timing

Agree the PSA by 6 July following the tax year; pay tax and Class 1B by 22 October (electronic payment)

Payment is annual, after the tax year ends. Postal payments are due slightly earlier, on 19 October.

Employment allowance amount

Maximum relief = £10,500 per tax year

Given in the ATX-UK tax tables. Per employer, or per group of connected companies.

Employer Class 1 NIC before allowance

15% × (earnings above £5,000 per employee per year)

Rate and threshold as given in the tax tables. Apply per employee.

NIC payable after allowance

Secondary NIC − lower of (£10,500, secondary NIC due)

The result cannot be below nil. Unused allowance is lost.

Connected companies

One allowance of £10,500 shared across the connected group

Connected where one company controls the other or the same person controls both. Allocate sensibly.

Eligibility check

Not eligible if the only employee paid above the secondary threshold is a director, or if a public sector or domestic employer

State the exclusion in plain words and apply it to the facts.

Class 4 on profits up to the lower limit

£1 – £12,570 × 0% = nil

The first £12,570 of taxable trading profits bears no Class 4.

Class 4 main rate band

(lower of profits and £50,270 − £12,570) × 6%

Maximum charge in this band is £37,700 × 6% = £2,262.

Class 4 upper rate

(Profits − £50,270) × 2%

Applies only if profits exceed £50,270.

Total Class 4

Band 1 charge + band 2 charge

Use the tax year's taxable trading profits, per person, before personal allowance.

Class 4 NIC (self-employed profits)

6% × (profits between £12,570 and £50,270) + 2% × (profits above £50,270)

No Class 4 on the first £12,570. Rates from the ACCA tax tables for this sitting.

Qualifying years for state pension

Full new state pension: 35 qualifying years. Some pension: at least 10 qualifying years

Check the years already in the record and the years left to state pension age before advising on voluntary payments.

Class 2 treatment

Profits at or above small profits threshold: treated as paid, no cash cost. Below threshold: voluntary payment allowed

Not a compulsory charge. Take the threshold from the exam information.

Class 3 purpose

Class 3 = flat weekly voluntary payment to fill a gap year

Mainly protects state pension record. Use the rate given in the exam.

Cost of Class 3 or voluntary Class 2

Weekly rate × number of weeks in the year

Compare with the extra state pension secured.

Employee Class 1 NIC

0% to £12,570; 8% on £12,571 to £50,270; 2% above £50,270

Annual figures. Paid by the employee on earnings.

Employer Class 1 NIC

15% × (earnings − £5,000)

No NIC below £5,000. Deductible against trading profits. Employment allowance of £10,500 may reduce the bill if the employer is eligible.

Class 1A NIC

15% × taxable benefits

Employer only. No employee NIC on benefits.

Class 4 NIC

6% on profits £12,571 to £50,270; 2% above £50,270

Self-employed only. Nil on profits up to £12,570.

Gross pay for a fixed employer cost

Gross salary = Total cost ÷ 1.15

Use when the employer's NIC is at the 15% rate and the earnings are already above £5,000.

Dividend route net cash

Profit × (1 − CT rate) × (1 − dividend tax rate)

No NIC. Dividend rates are 8.75%, 33.75% and 39.35%. First £500 of dividends is at nil rate.

Quick revision

• Class 1 primary is paid by the employee: nil on £1 to £12,570, 8% on £12,571 to £50,270, 2% above.
• Class 1 secondary is paid by the employer: nil up to £5,000, then 15%.
• Class 1A is 15% and is paid by the employer only, on benefits in kind.
• Class 4 is paid on trading profits: nil up to £12,570, 6% to £50,270, 2% above.
• The employment allowance is £10,500 and reduces the employer's Class 1 liability.
• Class 1A is based on the benefit value, so get the benefit calculation right first.
• Car benefit for a zero-emission electric car uses a 3% percentage.
• Class 1B and PAYE settlement agreements deal with specific items the employer agrees to settle for the employee.
• Use the thresholds in the exam tax tables; do not rely on memory.
• In planning questions, include both employee and employer NIC in the total cost.
• State your assumptions and give a clear recommendation in advice questions.

Common mistakes

• Applying the 8% rate to all earnings, ignoring the £12,570 threshold. Fix: Always deduct £12,570 first. Only earnings above it are charged.
• Using the £12,570 threshold for the employer. Fix: The employer's threshold is £5,000. Label each calculation as primary or secondary.
• Charging Class 1A on the employee as well. Fix: Class 1A is employer-only. Say so clearly, and put no NIC charge in the employee's computation.
• Applying a threshold or a 2% or 8% rate. Fix: Class 1A has one rate, 15%, with no threshold. Use the total benefit figure.
• Charging Class 1B on the value of the items only Fix: Always use value plus grossed-up tax as the Class 1B base.
• Not grossing up the tax, or taking 40% of the value Fix: Use value × t ÷ (1 − t). At 40% that is value × 40/60, not value × 40%.
• Giving each connected company its own £10,500. Fix: Check for common control. If connected, one allowance covers the whole group.
• Applying the allowance to employee NIC or Class 4. Fix: Use it only against the employer's Class 1 secondary NIC.
• Deducting the personal allowance before computing Class 4. Fix: Class 4 is on taxable trading profit with no allowance. Use the NIC limits only.
• Including dividends, interest or property income in the Class 4 base. Fix: Use trading profit only.

Exam tips

• Copy the NIC table from the tax tables into your working before you start. Do not rely on memory for the bands.
• Label every figure as primary or secondary. Markers give credit for clear labelling even if a number is wrong.
• Spot that benefits in kind are outside Class 1. Say so in one sentence to earn a mark.
• In advice questions, state the marginal rates. The employer's 15% is often the key point when comparing salary against other rewards.
• Show workings to the nearest £ as the supplementary instructions require.
• Show the benefit workings separately, then the total and the 15%. Marks are given for each benefit value even if the final NIC is wrong.
• Pick up the car percentage, the £28,200 base, and the van figures from the tax tables, and state which table you used.
• Check for part-year availability and employee contributions before totalling.