Earnings threshold for employer NI contributions

ForumUser7

To clarify, by NI I mean National Insurance, not Northern Ireland

Marcon

ForumUser7 said:

With NI, are weeks done individually please? I.e. earning over 242 in one week means NI is due for that week, regardless of how much we’ll have earned across the year? Or is it the case that, should we earn less than 12570 across the year, NI taken in that year would be refunded at the end of the year? This is the key bit that I can’t get my head around, and it could just be that tax and NI function differently when it comes to this.

Example

Week 1, we earn 400.

Weeks 2-52 we earn 100.

(51*200) + (1*400) = £10,600.

Therefore, what if any income tax would be due, and what if any NI would be due please? I've got it down to the following 2 options

1. No Income Tax and no NI
2. No Income Tax, and £12.64 NI (from week 1)

Thank you

That's exactly what's confusing the issue!

NI is based wholly on pay periods (in your case, on a month by month basis since you've said you are paid monthly - so what you earn on separate weeks during a month isn't relevant for NI periods) and is NOT cumulative for the year. In weeks 1-4 you'd earn £700 for the month, so no NI payable. 

Tax is cumulative, and is based on what you earn in the tax year. You are below the personal allowance, so no tax payable.

ForumUser7

Marcon said:

ForumUser7 said:

With NI, are weeks done individually please? I.e. earning over 242 in one week means NI is due for that week, regardless of how much we’ll have earned across the year? Or is it the case that, should we earn less than 12570 across the year, NI taken in that year would be refunded at the end of the year? This is the key bit that I can’t get my head around, and it could just be that tax and NI function differently when it comes to this.

Example

Week 1, we earn 400.

Weeks 2-52 we earn 100.

(51*200) + (1*400) = £10,600.

Therefore, what if any income tax would be due, and what if any NI would be due please? I've got it down to the following 2 options

1. No Income Tax and no NI
2. No Income Tax, and £12.64 NI (from week 1)

Thank you

That's exactly what's confusing the issue!

NI is based wholly on pay periods (in your case, on a month by month basis since you've said you are paid monthly - so what you earn on separate weeks during a month isn't relevant for NI periods) and is NOT cumulative for the year. In weeks 1-4 you'd earn £700 for the month, so no NI payable. 

Tax is cumulative, and is based on what you earn in the tax year. You are below the personal allowance, so no tax payable.

Apologies, to add to the confusion - I’m now paid weekly. 

General_Grant

For National Insurance each pay period (weekly or monthly) is considered separately.  Income for the year is not aggregated, unlike for Income Tax.

molerat

Wk1 paid £400.  £31.60 tax and £12.71 NI - £355.69 take home

Wk2 paid £100. £28.40 RF tax and £0.00 NI - £128.40 take home

Wk3 paid £100. £3.20 RF tax and £0.00 NI - £103.20 take home

Wk4 to 52 paid £100. £0.00 tax and £0.00 NI - £100 take home.

ForumUser7

Thanks everyone - you've all been much more helpful than HMRC themselves!

molerat said:

Wk1 paid £400.  £31.27 tax and £12.71 NI - £355.69 take home

Wk2 paid £100. £28.40 RF tax and £0.00 NI - £128.40 take home

Wk3 paid £100. £3.20 RF tax and £0.00 NI - £103.20 take home

Wk4 to 52 paid £100. £0.00 tax and £0.00 NI - £100 take home.

Thanks for this breakdown @molerat - can I ask two things please

1. How come they refund it across 2 separate pay checks? Is this because they only realise bit by bit I shouldn't be paying any tax?
2. That would mean they refunded 31.60 but I only paid 31.27 tax. Is that just a typo, or would they overpay the refund and then likely tell me at the end of the year I owed them 33p please?

Thank you

molerat

1) PAYE is based on how much tax those earning should have paid on a cumulative basis using 1/52 of your tax allowance each week.  

At wk1 you are allowed £241.92 tax free, you earned £400 so tax due on £158 which is £31.60.  Note only whole pounds are taxed.

At week 2 you are allowed a total of (wk1 + wk2) £483.84 tax free, you earned (wk1 + wk2) £500 so tax is due on £16 which is £3.20.  You had already paid £31.60 so (£31.60 - £3.20) £28.40 had to be refunded.  

At wk3 you are allowed (wk1 + wk2 + wk3) £725.76 tax free, you earned (wk1 + wk2 + wk3) £600 so no tax is due.  You had paid £3.20 tax so that has to be refunded.

At wk4 ...................

2) Fat fingers, should be £31.60.

ForumUser7

molerat said:

1) PAYE is based on how much tax those earning should have paid on a cumulative basis using 1/52 of your tax allowance each week.  

At wk1 you are allowed £241.92 tax free, you earned £400 so tax due on £158 which is £31.60.  Note only whole pounds are taxed.

At week 2 you are allowed a total of (wk1 + wk2) £483.84 tax free, you earned (wk1 + wk2) £500 so tax is due on £16 which is £3.20.  You had already paid £31.60 so (£31.60 - £3.20) £28.40 had to be refunded.  

At wk3 you are allowed (wk1 + wk2 + wk3) £725.76 tax free, you earned (wk1 + wk2 + wk3) £600 so no tax is due.  You had paid £3.20 tax so that has to be refunded.

At wk4 ...................

2) Fat fingers, should be £31.60.

Ah thank you - I understand. I should've come to the forum first, HMRC just left me so confused so I very much appreciate your help with this

ForumUser7

Regarding NI pay periods - some weeks I earn more than the threshold, but most I'll earn much less as mentioned above. This is why it worked well being paid monthly before (as I never ended up paying NI), but this isn't an option with the new employer. Are there any good legal ways to sort this please? Does the employer have to offer a different pay period on request? Can I request to defer pay (have it accrue with the employer, and ask for X amount every so often)? I had a look online, but couldn't find any good legal suggestions. I imagine it's just a case of it is what it is unfortunately.