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ACCA Applied Skills · Taxation (UK) · National insurance contributions for employed and self-employed persons

Brightway Ltd pays one employee, Mr Osei, gross earnings of £42,000 in the tax year. Brightway Ltd is not eligible for the employment allowance and is not entitled to any other employer NIC relief. What is the Class 1 employer NIC payable for Mr Osei for the year?

The employer Class 1 NIC is £5,550. Employer contributions are charged at 15% only on earnings above the £5,000 annual threshold, so 15% of £37,000 (£42,000 less £5,000) gives £5,550. Charging 15% on the full salary would overstate the liability.

  1. A£5,550Correct
  2. B£6,300
  3. C£3,300
  4. D£7,500

Explanation

Employer Class 1 NIC is 15% on earnings above £5,000 per year. Taxable amount = £42,000 - £5,000 = £37,000. £37,000 x 15% = £5,550. The figure of £6,300 wrongly applies 15% to the whole £42,000 with no £5,000 threshold.

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