{"id":3555,"date":"2019-01-03T09:12:51","date_gmt":"2019-01-03T09:12:51","guid":{"rendered":"http:\/\/my-brains.co.uk\/jackross\/?p=3555"},"modified":"2019-01-03T09:12:51","modified_gmt":"2019-01-03T09:12:51","slug":"national-insurance-planning-2","status":"publish","type":"post","link":"https:\/\/my-brains.co.uk\/jackross\/national-insurance-planning-2\/","title":{"rendered":"National insurance planning"},"content":{"rendered":"

Obligations and opportunities<\/span><\/h2>\n

National insurance contributions (NICs) are set aside to pay the state pension and other benefits, but due to the UK\u2019s ageing population the National Insurance Fund is under increasing strain, with the state pension taking up more than 90% of its annual outlay in 2018.<\/p>\n

A review by the Government Actuary\u2019s Department (GAD) predicted the fund would be empty by around 2032.<\/p>\n

There is no pot of money set aside to pay future state pensions, which are funded on a pay-as-you-go basis, which means that future pensioners are reliant on the NICs of future workers to pay their pensions.<\/p>\n

On its website, the GAD said: \u201cIf the system is to continue to cover the current form of state pension and other benefits, then either the fund\u2019s income has to rise or expenditure has to be controlled\u201d.<\/p>\n

Although the Treasury can top up the fund through a grant, restrictions on the level of grant the Treasury can make mean this will not be enough to stop the fund from running down. The most likely alternative therefore is an increase in NICs.<\/p>\n

Employers, employees and the self-employed are required to pay NICs on relevant earnings or profits above a set threshold.<\/p>\n

Class 1 contributions, which are paid by employers and employees, made up 96% of the total contributions to the fund in 2015\/16.<\/p>\n

Changes in NICs have proved politically sensitive in recent years.<\/p>\n

The Government has looked at increasing the contribution made by the self-employed through changes to class 4 and class 2 NICs to shift some of this burden.<\/p>\n

It has also withdrawn increases to class 4 NICs and shelved the proposed changes to abolish class 2 NICs, so that the weight of NICs continues to fall more heavily on the employed.<\/p>\n

All rates and percentages stated in this article relate to 2018\/19 tax year.<\/p>\n

Class 1 NICs<\/span><\/h2>\n

Currently, if you earn more than \u00a3162 a week and are under the state pension age, you pay NICs of 12% on earnings up to \u00a3892 per week. The rate drops to 2% on earnings over \u00a3892 a week.<\/p>\n

The standard rate for NICs payable by employers is 13.8% of an employee\u2019s earnings, above the same \u00a3162 a week threshold.<\/p>\n

However, despite the higher rates of class 1 NICs, there are still planning opportunities available to employers to potentially lower their NICs bill, in particular owner-managed businesses.<\/p>\n

An owner-managed business is in the unique position of being able to withdraw funds from the company in the form of salary and dividends.<\/p>\n

If you\u2019re an owner-manager who also has a director\u2019s loan due to you from the company, there is the possibility of paying yourself interest on the balance of the loan outstanding as well.<\/p>\n

Neither the dividend payments nor any interest payments would attract any class 1 employer or employee NICs.<\/p>\n

By paying yourself a salary which falls between the lower earnings limit of \u00a3116 per week and the primary threshold of \u00a3162 per week, you would not trigger either an employee or an employer class 1 NICs charge. However, you would still qualify for state pension purposes as having paid sufficient contributions in that tax year.<\/p>\n

It is therefore possible with careful planning as an owner-manager to minimise the amount of NICs due.<\/p>\n

Having more than one job<\/span><\/h2>\n

If you have more than one job or if you are both employed and self-employed, there may be steps you can take to cap the amount of class 1 NICs that you pay.<\/p>\n

If you have two jobs and you expect to pay class 1 NICs on weekly earnings of at least \u00a3892 per week throughout the whole tax year in one of those jobs, you can ask to defer payment of NICs in the other job. You will need to make an application for deferment of class 1 NICs on form CA72A.<\/p>\n

If you are both employed and self-employed then you will need to pay both:<\/p>\n