Calculating NICS

[penf8391jk]

I recently left my accountant. Before I left, they calculated NICS contributions for me as an employer and for my employees.

I paid 3 employees £675 for two consecutive months. On their advice, I paid £70.20 NICS based on Employee NI of £4.80 and Employer NI of £6.90 for each employee/month.

I am submitting my P14/P35 forms and have used the HMRC Basic PAYE Tool P11 calculator, it calculates the amounts as Employee NI of £4.92 and Employer NI of £7.04. Why the difference? The accountants figures say net of rebate.

Also, 2 of the employees are Directors, so the end of year summary shows zero NICS. Therefore giving a total of £23.92 not £70.20 as paid. Have they messed this up? Just trying to figure out what figures I should use on the forms. Thanks.

 

[RTI-man]

Simple answer is....you're both right (but the accountant doesnt know what theyre talking about!)

NI is a strange beast (or at least HMRC is), they allow 2 methods of calculating NI, the first is what everyone should be doing these days and involves a straight forward percentage based calculation based on the actual earnings. This is what the BPT has used to correctly come up with the 4.92 and 7.04 per month amounts.

The second is an antiquated hang onto the past method which involves HMRC producing tables each year for the weekly and monthly calculations where they detail all the weekly values in steps of a pound, each one of those calculated on the mid point between it and the last ie £201 earnings has its NI values calculated on £200.50.

In your case 674 falls smack in the middle of £672 and £676 on the monthly table (do a search for 2011/12 CA38 table....then goto page 25) so in this case you use the nearest value below the actual value ie £672 and look up the NI values.

All software should use the percentage method, there is no logical reason that I can see (maybe Tom might know one) why a Software product would use Table method, that would either mean they have had to code all the tables in manually or have produced the actual percentage method plus a little bit more code to work out mid-points etc. Actually I have just thought of a reason, this thread! by using table method any employee checking their pay against the tables manually would get the same answer however nowadays that has probably reversed and employees would use an online calculator which wouldnt match.

Thats the easy part of your query however the slightly more complicated portion is the Directors.

Directors NI is calculated on an annual basis in order to avoid Directors paying themselves below the LEL for 51 weeks of the year and then a massive sum in week 52 to pay less NI.

This annual calc can be done two ways either cumulatively totalling the pay each period and not paying NI until you've reached the annual levels or paying as an employee does with a reassessment in the last pay of the year.

The first method involves wildly differing NI values across each period while the second allows the NI to be spread in a more sensible way.

eg Director earns £2k per month would pay £163.92 per month NI on employee method but on the full annual would pay
zero months 1 - 3
£47.40 months 4
£240 months 5 - 12

If they earned over the UEL then once they reached it they would then see a drop in NI so it fluctuates across the year.

On the employee method they would spread that NI liability equally over the 12 months so pay it based on the monthly calcs. In your case £675 per month gives the £4.92 value).

In month 12 however you would add all the pays up (£1350) and calculate on annual basis so without any additional info you would get £0 Directors NI.

BUT....Im assuming that if youve only paid 2 months then these employees are new? ie theyve only worked for those last 2 months of the year.

If thats the case then the Directors annual is then based on a pro-rata value depending on the tax WEEK they were employed as a Director.

If we assume for this example, they were employed in week 45 then you would get Annual E'ee NI of £21.60 and E'er of £27.32

Week 44 would give £3.96 and £7.45 respectively, while
week 46 would produce £39.12 and £47.20

so as you can see the tax week is hugely important to factor in during the year of them becoming a Director.

In short you've done a good thing in booting that accountant, not because of any difference in the NI calculated but because the answer they gave you was pure rubbish to fob you off. It has nothing to do with rebates (if you were paying a rebateable category then the values would be totally different).

 

[penf8391jk]

Thank you for taking the time to explain this. This is fantastic and makes my life a lot easier. I really appreciate the effort. Thank you very much.

 

[penf8391jk]

The directors worked for 7 months of the year:

months 6-7 at £675 month (£1350)
months 8-12 at £620 month (£3100)
£4450

All paid on the last day of the month. On these figure the BPT calculates zero NICS liability.

Can I use the BPT figures to fill in P14 and P35, even though I paid an amount based on my accountants calculation?

 

[RTI-man]

It all comes down to the date of appointment.

For someone to be working in Month 6 then I would guess an appointment week somewhere between 20 (23/08/12) and 25 (27/09/12) unless they were appointed sooner but not paid.

The Total NI liability for those weeks is:
20, 21 or 22: Nil liability
23: £25.38
24: £62.77
25: £100.28

And yes, you should use whatever figures you believe are correct, you should then sort out any difference within Mays payment (if there is one).


EDIT to my original post:
Just a daft one but where I talked about a weekly payment of £201 being calculated within the tables on £200.50 I was wrong (daft error) as the weekly tables go up in steps of £1 then £201 would be calculated as £201. £200.99 however would use £200.50 as its mid point.

 

[penf8391jk]

Thanks again. I have just gone over my records. (I was using those provided by my accountant.) It seems the directors were each employed for 8 months at £675 not 2 as calculated by the accountant, so it looks like I underpaid the NI. I was told I needed to pay it by April 19th. Will there be a penalty if I pay it now?

 

[Tom McClelland]

The only reason to have payroll software duplicate the manual tables is to avoid arguments with new sites who check NI results against the manual tables. These people are greatly outnumbered by those who would check NI results against the Basic PAYE tools so the argument would merely switch to a different set of users.

Sage Payroll duplicates the manual tables, and is the only product that I'm aware of that does so. The real stupidity is that HMRC has two different specifications. It would be far simpler if everyone were required to duplicate the manual tables (which can be done algorithmically, since that is how the tables are produced in the first place). Manual tables that duplicated the current software specification would require about 200x more pages, therefore not practical to issue on paper.

 

[RTI-man]

The only reason to have payroll software duplicate the manual tables is to avoid arguments with new sites who check NI results against the manual tables. These people are greatly outnumbered by those who would check NI results against the Basic PAYE tools so the argument would merely switch to a different set of users.

Sage Payroll duplicates the manual tables, and is the only product that I'm aware of that does so. The real stupidity is that HMRC has two different specifications. It would be far simpler if everyone were required to duplicate the manual tables (which can be done algorithmically, since that is how the tables are produced in the first place). Manual tables that duplicated the current software specification would require about 200x more pages, therefore not practical to issue on paper.

Personally, I'd like to see HMRC remove the manual tables and make the likes of Sage (and one or two others that I know of) only use Direct Percentage. There are a couple of packages that allow both, giving the user the option to select which method they use which I personally cannot fathom out the logic of.

 

[penf8391jk]

On the P35 box for "Tax and NIC already paid" should I write 70.20 and send an electronic payment for the balance, or send the payment first then fill in the full amount? Thanks.

 

[Tom McClelland]

Personally, I'd like to see HMRC remove the manual tables and make the likes of Sage (and one or two others that I know of) only use Direct Percentage. There are a couple of packages that allow both, giving the user the option to select which method they use which I personally cannot fathom out the logic of.

Now that everyone needs software (to file RTI) the manual tables are an anachronism that should be withdrawn. Once that has been enacted the logical move would indeed be to compel everyone to follow the exact percentage method.

 

[RTI-man]

On the P35 box for "Tax and NIC already paid" should I write 70.20 and send an electronic payment for the balance, or send the payment first then fill in the full amount? Thanks.

I believe you show the £70.20 and pay any difference.

 

[ustina]

hi , i have one question, if emploee tax code is BR the emoloyee and employer NIN contribution is paid above PT or from base ex. his gross is £238

 

[Scalloway]

The NI will be what is due for a gross of £238. NI starts from zero in each employment.

 

[RTI-man]

hi , i have one question, if emploee tax code is BR the emoloyee and employer NIN contribution is paid above PT or from base ex. his gross is £238

Employee pays above PT, Employer everything above the ST.

Is the pay per week?