Notices of decision: Wording of National Insurance contributions liability decisions: Example of calculating unpaid Class 1 National Insurance contributions due on earnings above the upper earnings limit
DANSP31000 provides general information about calculating Class 1 National Insurance contributions (NIC) liability where the NIC due is more than the NIC paid and the unpaid NIC are due on earnings above the upper earnings limit (UEL). The example below illustrates how to calculate Class 1 NIC in such cases.
A director who has paid Class 1 NIC on earnings above the annual UEL in the 2005/06 and 2006/07 tax years, receives in each tax year, a payment of earnings on which no NIC have been paid. The company and director do not consider the payments are earnings and that no additional Class 1 NIC are due. HMRC considers that the payments are earnings and Class 1 NIC are due. The company confirmed that the director’s earnings included in gross pay for both years exceeded the UEL. An annual earnings period applies to both tax years.
End of year returns (P14) show
|Tax year||NIC table letter||Total NIC paid (£)||Total of employees NIC paid (£)||Pay in this employment (£)|
Calculating the NIC liability amount for the decision
The director’s pay far exceeded the UEL. If you checked the employees NIC paid it is at least equivalent to the primary NIC due on earnings up to the UEL, so as the company confirmed that the directors earnings included in gross pay for both tax years exceeded the UEL, it is safe to assume that the director has paid primary NIC on earnings up to the UEL.
Class 1 NIC due on payments not included in gross pay
|Tax year||Earnings not included in gross pay (£)||Secondary NIC due at 12.8% (£)||Primary NIC due at 1% (£)||Total NIC (£)|
Class 1 NIC liability amount to enter on the notice of decision is £67,860.45, calculated as shown in the table below.
|Tax years||Total NIC paid - on P14s (£)||Total NIC due on earnings not included in gross pay (£)||Total NIC (£)|
|2005/06 & 2006/07||29,910.45||37,950||67,860.45|