Payroll insight
a plethora of varying categories because somebody, somewhere obviously thought that payrollers’ lives were just far too easy. It is important to recognise the monumental differences between a NI category and a NI class as they dictate completely different things, and it is also imperative to remember that NI categories only apply to class 1 NICs. The categories are associated primarily with age but there are also exceptions for apprentices, those who are already paying NICs in a separate job and for married women and widows who have an entitlement to pay lower NICs rates. Each category dictates both employee and employer percentage rates for individuals placed within scope. The standard NI category, applied to most employees, is ‘A’. The NICs categories as they currently stand can be found in Table 1. (The range of NICs categories can be viewed here: http://bit.ly/2CqjwiS.) NI classes are a different beast altogether and are concerned with the employment status of an individual, their earning levels and their continuous NI record. Payrollers would probably be most familiar with class 1 NICs which are those deducted via PAYE for earnings that exceed the lower earnings limit within a pay period. If you are classified as employed, these are the deductions that you will observe on your payslip. Class 2 and class 4 NICs correlate with the self-employed: class 2 is based on individual earnings and class 4 is profits related. To ensure consistency both have thresholds attached to them, below which no NICs are due. Class 2 and class NICs are usually paid via self-assessment which the self-employed individual is responsible for. Classes 1A and 1B are associated with employee benefits (P11D returns) and are paid across by employers. Class 3 NICs are voluntary contributions that a person may make to complete their NI record to ensure that they are eligible for certain benefits. How NICs are spent is wholly dependent on the class that they have been sourced from. Table 2 highlights the differences across the board. (Further
information can be found here: http://bit. ly/2PYkURS.) Figures from the most recent National Insurance Fund Account report reveal how much was collected by class in the year ending March 2018.
over time. It is particularly important that the fund holds sufficient funds to handle any periods in which significant pay outs must be made; for example, in the case of periods of high unemployment rates, where employment and support allowance figures will escalate. However, where payment figures exceed deductions, the additional funds get transferred to the National Insurance Fund Investment Account (NIFIA) and, conversely, when deductions exceed payments, the NIF takes from the Investment Account. The NIFIA is in existence to assist in the event of a deficit in the NIF. The simple reality of the situation in relation to NI is that we can never predict with 100% certainty how much will be generated annually and we can never guarantee what the bill for pensions and various benefit payments will be. So, this is a two-pronged issue for predictions and estimations surrounding the likely status of the NIF and its figures. Commentary Although only a brief overview of NI, this article demonstrates how payroll contributes to the essential funding of a wide array of government policies. It also highlights how NI acts as a form of insurance for contributors and, indeed, wider society, as it’s effectively a saving towards state pension and also to benefits that, realistically, any individual could find themselves needing access to at some point in their lives. It is impressive that what NI was originally set up to do has been maintained, although somewhat amended, and that the changing landscapes of society have not altered the foundations of NI completely. With the constantly evolving face of politics and perpetual changes to day to day life, it will be interesting to see the direction that NI takes in the future, so how it will change and adapt to slot in with new policies and technological advancements that are most definitely arriving over the next years and decades to come. n
...monumental differences between a NI category and a NI class as they
It is important to note that the figures in Table 3 have been collated independently of the National Health Service (NHS) allocation and shows the figures once the deduction has already been made. The application of NICs Since inception, the NI Fund has operated on a pay-as-you-go basis. Thus, NICs received during a fiscal year pay for certain state benefits arising in-year. A pre-determined portion of NICs is paid across to the NHS and the remaining monies are intended to be utilised exclusively for the pensions and benefits listed in Table 2. However, if there is a surplus in the NI Fund, the government may borrow money intermittently to assist with various projects. The fund can also be accessed in order to invest into the Debt Management Account. This will come as a shock to some, as there is a common misconception that NI is used to pay for police officers’ salaries or for hospital appointments and for all other expenditures of that nature but there are other government schemes in place that allocate funds for this. But, even now, consistent with what it was first introduced for at conception, NI is largely used for pension and benefit payments. The National Insurance Fund (NIF) is where all NICs related payments are held. The concept is that this fund holds ample capital to cope with the natural fluctuations to contributions and deductions that occur dictate completely different things...
...contributes to the essential funding of a wide array of government policies
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| Professional in Payroll, Pensions and Reward |
Issue 56 | December 2019 - January 2020
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