ESM8345 - Application of the NICs rules: annual earnings period - example
This example illustrates how to work out how much NICs has to be paid over at the end of the year in respect of the deemed payment where a company is involved and a salary has been paid during the year.
Mr F works through his service company, F Services Ltd. The company has relevant engagements during the year ended 5 April 2001. A deemed payment of £10334 is treated as paid at the end of the year. Mr F also received a salary of £20,000 during the year. His total earnings in the year are therefore £30,334
The employer’s NICs on the deemed payment is £1,261 and on the salary is £1,905.
Employment Income tax and Class 1 NICs are due on the total amount of earnings paid in the year and on the deemed payment.
The Class 1 NICs that are payable are as follows:
Employer’s Class 1 NICs
| - | Amount |
|---|---|
| Total earnings in year | 30334 |
| Employer’s NICs on total earnings* | 3166 |
| Deduct | - |
| Employer’s NICs already paid in year on salary | 1905 |
| Additional employer’s NICs payable on deemed payment | 1261 |
*This is calculated by:
- subtracting the Employer’s Earnings Threshold (£4,385) from the total earnings (£30,334) in the year; and
- then multiplying the resulting amount (£25,949) by the employer’s NIC percentage rate for the period (in this case 12.2%).
Employee’s Class 1 NICs
| - | Amount |
|---|---|
| Employee’s NICs due+ | 2343 |
| Employee’s NICs already paid in year on salary | 1605 |
| Additional employee’s NICs payable | 738 |
+This is calculated by:
- subtracting the Employee’s Earnings Threshold (£4,385) from the Upper Earnings Threshold (or total earnings if lower) (£27,820); and then
- multiplying the resulting amount (£23,435) by the appropriate employee’s NICs percentage rate (in this case 10%).