Introduction to Income Tax and NICs Starters and Leavers
Example 1 A new employee starts work mid-November and is to be monthly paid. It is too late to pay in November, but in December the employee receives £275 for November and £1,250 for December. It is not correct to add the payments together and charge NICs on the total of £1,525. Instead, NICs should be calculated separately on £275 and £1,250, using a monthly earnings period for each component. This gives the employee (and, in many cases, the employer also) the benefit of the NICs Lower Earnings Limit, Primary Threshold (PT) and Secondary Threshold (ST) on each component. In this example, no NICs will be payable for the November component because it falls below the monthly PT of £1,048 and ST of £758. Both employee and employer have lower NICs to pay than would be the case if the two months’ earnings had been added together. A slight complication arises where the payments span the end of the tax year. Suppose the months in the above example had been March and April. Although they are in different tax years, the same principle would apply. NICs should be calculated separately on both payments using the NICs earnings limits and percentage rates in force at the time the payment is actually made, regardless of the period to which it relates.
Leavers
The correct procedure is similar to those applicable to mistimed payments made to starters:
• Keep each weekly or monthly payment separate
• Calculate NICs separately on each payment
• Use the NICs rates and earnings limits in force at the time the payment is made.
Example 2 A monthly-paid employee is leaving on 5 April. The employer pays the salary for April with the salary for March. The two should be kept separate for calculating NICs.
Example 3 At the end of the last week of work, a weekly paid employee is paid two weeks’ pay comprising pay for the previous week and pay for the current week. The payments are to be kept separate for calculating NICs.
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