Briefing note. National Insurance Contributions guidance for software developers to Effective for the tax year

Transcription

1 Briefing note National Insurance Contributions guidance for software developers Effective for the tax year 2017 to 2018 Format for National Insurance contributions calculations Technical Specification Issued October 2016

2 Briefing note National Insurance contributions (NICs) guidance for software developers for 2017 to 2018 Table of contents Page No. Glossary of terms 3 Briefing note 4 UST/AUST above UEL 5 Earnings bands and NICS percentage rates 7 UEL above UST/AUST 8 Earnings band and NICs rates 10 Director s NICs calculation formulae 11 UST/AUST above UEL 12 UEL above UST/AUST 14 2

3 Glossary of terms GP LEL PT ST UEL UST AUST NICs Gross Pay for NICs purposes Lower Earnings Limit Primary Threshold Secondary Threshold Upper Earnings Limit Upper Secondary Threshold Apprentice Upper Secondary Threshold National Insurance contributions 3

4 Briefing note Class 1 National Insurance contributions possible changes for tax year 2017 to This Briefing Note sets out the changes which would be required to the formulae in the September 2016 version of the NI guidance for software developers, in the event that indexation results in the Upper Earnings Limit (UEL) being different to the Upper Secondary Threshold (UST) and Apprentice Upper Secondary Threshold (AUST) for the tax year 2017 to If, however, the UEL remains equal to the UST/AUST, no further changes will be required and the formulae will remain unchanged. Section 9A of the Social Security Contributions and Benefits Act was introduced by National Insurance Contributions Act It brings the Age Related Secondary Percentage into the National Insurance contributions system. If an earner falls into a certain age group then the age related secondary percentage is payable. Currently, the age group is Under 21 and the age related secondary percentage is 0%. The law allows other age groups to be added and percentage rates to be specified for that age group. An employer is entitled to pay the age related secondary percentage up to the UST which has, so far, been set as the same value as the UEL. There is, however, no statutory link between the UST and the UEL and the values could differ in the future. Similarly, section 9B of the Social Security Contributions and Benefits Act was introduced by National Insurance Contributions Act It brings Secondary Class 1 contributions: apprentices under 25 into the National Insurance contributions system. If an earner is a relevant apprentice then the employer is entitled to enjoy a rate of secondary National Insurance contributions of 0% up to the AUST which has, so far, been set as the same value as the UEL. There is, however, no statutory link between the AUST and the UEL and the values could differ in the future. A relevant apprentice is aged under 25, employed as an apprentice but the law allows the age that an earner must be to be a relevant apprentice to be amended. 4

5 UST/AUST above UEL Exact percentage method Step 1 Earnings up to and including LEL ( ( GP LEL x p) * ) If answer is negative no NICs due and no recording required. Stop. If answer is zero or positive enter result of calculation at this point*. on the payroll and proceed to Step 2. Step 2 Earnings above LEL up to and including PT ( GP ( LEL x p)) ( GP ( PT x p 1 ))# If answer is zero no NICs due and the payroll record should be zero filled. Stop. If answer is positive enter on the payroll record and proceed to Step 3. Step 3 Earnings above PT up to and including ST ( ( GP PT x p1 ( ))# ( GP ST x p1 ))# If answer is zero no NICs due and the payroll record should be zero filled. If answer is positive proceed to Step 4. Step 4 Earnings above ST up to and including UEL ( ( GP ST x p1 ( ))# ( GP UEL x p1 ))# If answer is zero enter result of calculation of Step 3 on the payroll record. If answer is positive enter the sum of the results of the calculations of both Step 3 and Step 4 on the payroll record and proceed to Step 5. Step 5 Earnings above UEL up to and including UST/AUST ( ( GP UEL x p1 ( ))# ( GP UST/AUST x p1 ))# If answer is zero the payroll record should be zero filled. If answer is positive enter on the payroll record and proceed to Step 6. 5

6 Step 6 Earnings above UST/AUST ( ( 1)) GP UST/AUST x p If answer is zero or negative no earnings above UST/AUST. Proceed to Step 7. If answer is positive proceed to Step 7. Step 7 Employee s NICs Step 3 multiplied by employee s band C % rate (round) Step 4 multiplied by employee s band D % rate (round) Step 5 multiplied by employee s band E % rate (round) Step 6 multiplied by employee s band F % rate (round). Step 8 Employer s NICs Step 4 multiplied by employer s band D % rate (round) Step 5 multiplied by employer s band E % rate (round) Step 6 multiplied by employer s band F % rate (round). Step 9 Total NICs Step 7 Step 8 total employer and employee NICs. 6

7 Earnings bands and NICS percentage rates Tier Value 2017 to Spare 7 UST/ AUST+ 6 UST/ AUST % Bands Employee s NI & Rates Employer s NI & Rates A/M/H B C J/Z A/B/ C/J M/Z/H Band F~ 2.0% 2.0% Nil 2.0% 13.8% 13.8% Band E# 12.0% 12.0% Nil 2.0% 13.8% 0% 5 UEL 43,000 Band D^ 12.0% 5.85% Nil 2.0% 13.8% 0% 4 ST 8,112 Band C* 12.0% 5.85% Nil 2.0% 0% 0% 3 PT 8,060 Band B 0% 0% Nil 0% 0% 0% 2 LEL 5,824 Band A Nil Nil Nil Nil Nil Nil * Band C gives appropriate NICs % rates for employers only and the NICs % rates for employees only between the PT and the ST ^ Band D gives the appropriate NICs % rates for employers and employees between the ST and the UEL # Band E gives the appropriate NICs % rates for employers and employees between the UEL and the UST/AUST ~ Band F gives the appropriate NICs % rates for employers and employees above the UST/AUST Mariners rates are not included in this table. 7

8 UEL above UST/AUST Exact percentage method Step 1 Earnings up to and including LEL ( ( GP LEL x p) * ) If answer is negative no NICs due and no recording required. Stop. If answer is zero or positive enter result of calculation at this point*. on the payroll and proceed to Step 2. Step 2 Earnings above LEL up to and including PT ( GP ( LEL x p)) ( GP ( PT x p 1 ))# If answer is zero no NICs due and the payroll record should be zero filled. Stop. If answer is positive enter on the payroll record and proceed to Step 3. Step 3 Earnings above PT up to and including ST ( ( GP PT x p1 ( ))# ( GP ST x p1 ))# If answer is zero no NICs due and the payroll record should be zero filled. If answer is positive proceed to Step 4. Step 4 Earnings above ST up to and including UST/AUST ( ( GP ST x p1 ( ))# ( GP UST/AUST x p1 ))# If answer is zero enter result of calculation of Step 3 on the payroll record. If answer is positive enter the sum of the results of the calculations of both Step 3 and Step 4 on the payroll record and proceed to Step 5. 8

9 Step 5 Earnings above UST/AUST up to and including UEL ( ( GP UST/AUST x p1 ( ))# ( GP UEL x p1 ))# If answer is zero the payroll record should be zero filled. If answer is positive enter on the payroll record and proceed to Step 6. Step 6 Earnings above the UEL ( ( 1)) GP UEL x p If answer is zero or negative no earnings above UEL. Proceed to Step 7. If answer is positive proceed to Step 7. Step 7 Employee s NICs Step 3 multiplied by employee s band C % rate (round) Step 4 multiplied by employee s band D % rate (round) Step 5 multiplied by employee s band E % rate (round) Step 6 multiplied by employee s band F % rate (round). Step 8 Employer s NICs Step 4 multiplied by employer s band D % rate (round) Step 5 multiplied by employer s band E % rate (round) Step 6 multiplied by employer s band F % rate (round). Step 9 Total NICs Step 7 Step 8 total employer and employee NICs. 9

10 Earnings band and NICs rates Tier Value 2017 to Spare 7 UEL+ 6 UEL % Bands Employee s NI & Rates Employer s NI & Rates A/M/H B C J/Z A/B/ C/J M/Z/H Band F~ 2.0% 2.0% Nil 2.0% 13.8% 13.8% Band E# 12.0% 12.0% Nil 2.0% 13.8% 13.8% 5 UST/ AUST 43,000 Band D^ 12.0% 5.85% Nil 2.0% 13.8% 0% 4 ST 8,112 Band C* 12.0% 5.85% Nil 2.0% 0% 0% 3 PT 8,060 Band B 0% 0% Nil 0% 0% 0% 2 LEL 5,824 Band A Nil Nil Nil Nil Nil Nil * Band C gives appropriate NICs % rates for employers only and the NICs % rates for employees only between the PT and the ST ^ Band D gives the appropriate NICs % rates for employers and employees between the ST and the UST/AUST # Band E gives the appropriate NICs % rates for employers and employees between the UST/AUST and the UEL ~ Band F gives the appropriate NICs % rates for employers and employees above the UEL Mariners rates are not included in this table. 10

11 Director s NICs calculation formulae For NICs, company directors are classified as office holders and, under Section 2(1) of the Social Security Contributions and Benefits Act 1992, office holders fall into the definition of employed earner. As such, provided their earnings reach appropriate levels, they are liable for Class 1 NICs. The earnings period for calculating NICs is usually determined by the interval between payments. For example, an employee who is monthly paid will have a monthly earnings period. However, to calculate NICs for company directors you must use either: an annual earnings period, or a pro rata annual earnings period. This applies regardless of the actual interval between the payments. Under Regulation 8(6) of the Social Security (Contributions) Regulations 2001, NICs can now be deducted on a weekly/monthly basis and the annual calculation completed when the last payment of earnings in the tax year (or directorship, if earlier) is being made to confirm the correct amount has been paid. Any subsequent amendments are then made to the payroll record. More detailed information about directors can be found in Booklet CA44 which is available to download. Go to The following formulae set out the basic rules for calculating company director s NICs, using an annual or pro rata annual earnings period. 11

12 UST/AUST above UEL Step 1 Earnings up to and including LEL GPptd LEL If answer is negative no NICs due and no recording required. Stop. If answer is zero or positive enter LEL on the payroll record and proceed to Step 2. Step 2 Earnings above LEL up to and including PT (GPptd LEL) # (GPptd PT) # If answer is zero no NICs due and the payroll record should be zero filled. Stop. If answer is positive enter on the payroll and proceed to Step 3. Step 3 Earnings above PT up to and including ST (GPptd PT) # (GPptd ST) # If answer is zero no NICs due and the payroll record should be zero filled. If answer is positive proceed to Step 4. Step 4 Earnings above ST up to and including UEL (GPptd ST) # (GPptd UEL) # If answer is zero the payroll record should be zero filled. If answer is positive enter the results of the calculation of both Step 3 and Step 4 on the payroll record and proceed to Step 5. Step 5 Earnings above UEL up to and including UST/AUST (GPptd UEL) # (GPptd UST/AUST) # If answer is zero the payroll record should be zero filled. If answer is positive enter on the payroll record and proceed to Step 6. Step 6 Earnings above UST/AUST GPptd UST/AUST If answer is zero or negative no earnings above UST/AUST treat as zero, proceed to Step 7. If answer is positive proceed to Step 7. 12

13 Step 7 Director s NICs Step 3 multiplied by employee s band C % rate (round) Step 4 multiplied by employee s band D % rate (round) Step 5 multiplied by employee s band E % rate (round) Step 6 multiplied by employee s band F % rate (round) employee s NICs due to date. Step 8 Director s net NICs Step 7 employee s net NICs due to date MINUS Employee s net NICs paid to date employee s net NICs due this period. Step 9 Employer s NICs Step 4 multiplied by employer s band D % rate (round) Step 5 multiplied by employer s band E % rate (round) Step 6 multiplied by employer s band F % rate (round). Step 10 Employer s net NICs Step 9 employer s net NICs due to date (enter on the payroll record) MINUS Employer s net NICs paid to date employer s net NICs due this period. Step 11 Total NICs Step 8 Step 10 total employer and employee NICs. 13

14 UEL above UST/AUST Step 1 Earnings up to and including LEL GPptd LEL If answer is negative no NICs due and no recording required. Stop. If answer is zero or positive enter LEL on the payroll record and proceed to Step 2. Step 2 Earnings above LEL up to and including PT (GPptd LEL) # (GPptd PT) # If answer is zero no NICs due and the payroll record should be zero filled. Stop. If answer is positive enter on the payroll record and proceed to Step 3. Step 3 Earnings above PT up to and including ST (GPptd PT) # (GPptd ST) # If answer is zero no NICs due and the payroll record should be zero filled. If answer is positive proceed to Step 4. Step 4 Earnings above ST up to and including UST/AUST (GPptd ST) # (GPptd UST/AUST) # If answer is zero the payroll record should be zero filled. If answer is positive enter the results of the calculation of both Step 3 and Step 4 on the payroll and proceed to Step 5. Step 5 Earnings above UST/AUST up to and including UEL (GPptd UST/AUST) # (GPptd UEL) # If answer is zero the payroll record should be zero filled. If answer is positive enter on the payroll record and proceed to Step 6. Step 6 Earnings above UEL GPptd UEL If answer is zero or negative no earnings above UEL treat as zero, proceed to Step 7. If answer is positive proceed to Step 7. 14

15 Step 7 Director s NICs Step 3 multiplied by employee s band C % rate (round) Step 4 multiplied by employee s band D % rate (round) Step 5 multiplied by employee s band E % rate (round) Step 6 multiplied by employee s band F % rate (round) employee s NICs due to date. Step 8 Director s net NICs Step 7 employee s net NICs due to date MINUS Employee s net NICs paid to date employee s net NICs due this period. Step 9 Employer NICs Step 4 multiplied by employer s band D % rate (round) Step 5 multiplied by employer s band E % rate (round) Step 6 multiplied by employer s band F % rate (round). Step 10 Employer s net NICs Step 9 employer s net NICs due to date (enter on the payroll record) MINUS Employer s net NICs paid to date employer s net NICs due this period. Step 11 Total NICs Step 8 Step 10 total employer and employee NICs. 15

16 This leaflet gives general guidance only and should not be treated as a complete and authoritative statement of the law. Leaflet NI guidance for software developers from Prepared by HM Revenue & Customs PTCP&P NICs Process Team Newcastle upon Tyne NE98 1ZZ EB5 (NI guidance for software developers) 2017