Introduction to Income Tax and NICs National Insurance contributions
Note that Classes 1, 1A and 1B are mutually exclusive. If Class 1 NICs are due on the earnings (or on a payment in kind), then Class 1A and 1B NICs are not also due on the same earnings (or payment).
4.4
Definition of ‘employee’
For NICs purposes, an employee is someone who works under a contract of service, rather than a self-employed person who will work under a contract for services. Included within the scope of ‘employee’ are:
• C ompany directors and ‘office holders’ such as Jud ges, MPs
Apprentices
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Agency workers.
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In most cases, it will be obvious who are and who are not employees, but doubts will occasionally arise. For example, someone may be engaged as a consultant or perhaps on a short-term contract and may ask to be treated as self-employed by the employer.
If an employer has any doubt about the status of a worker, then confirmation should be sought from HMRC at an early stage.
4.5
‘Earnings’
Class 1 National Insurance contributions are earnings- related. The employee’s earnings determine the amount due on any given pay day for the period.
When calculating ‘NICable’ earnings, no deduction is made from NICable earnings for charitable Payroll Giving contributions or pension scheme contributions, which can happen when calculating tax. For this reason, the taxable and NICable earnings will often be different, with the NICable earnings figure often being the same as the gross pay figure. The scope of ‘earnings’ in the NICs legislation is drawn very wide ly. It includes certain benefits in kind (BiKs) (or ‘payments in kind’ as they are termed for NICs purposes).
Excluded from the scope is any amount that the employer reimburses for genuine business expenses incurred and met by the employee. Also excluded are:
• The employer’s contributions to the employee’s pension scheme
• Any pension payments made by a pension scheme.
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