SolvedESM8345 | Application of the NICs rules: annual earnings period - example
From HM Revenue & Customs · Employment Status Manual
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%).