Multiple Employments and NICs
As we all know, employees in the UK must pay primary Class 1 National Insurance Contributions (NICs), when:
- they are in employment
- they are aged 16 and above
- they are under the State Pensions age, and
- their earnings from employment exceed the Primary Threshold (PT)
Some employees or directors may have multiple employment instances or directorships, and find themselves subject to NICs for multiple sources of income, on an individual basis.
The law stipulates that NIC liabilities arise in all employments, but where an individual has multiple jobs and expects to pay primary Class 1 NICS on earnings that exceed the Upper Earnings Limit (£817 per week for 2011/2012) throughout the whole of the tax year and the UEL plus PT (£956 per week for 2011/2012) for two jobs throughout the whole year, Her Majesty's Revenue & Customs (HMRC) allows employees or directors who have more than one employment to apply to the National Insurance Contributions Office (NICO) for permission to defer some of their potential contributions liability.
If an individual satisfies the conditions for deferment then they can submit the form CA27A. Normally the form is submitted prior to the start of the tax year, but HMRC will accept the form until 14 February during the same tax year. They may accept a later form up to 5 April of the tax year but only with the agreement of the employer, as the window to operate the NIC refund within the payroll may have been missed.
If an application is accepted then the “Deferment Services” of NICO issues the form CA2700 to the employer authorising them to deduct primary NICs at a rate of 2% on all earnings from the Primary Threshold (PT) for that tax year. A deferment certificate is only valid for the specified tax year and a new application is required for each subsequent tax year if the circumstances continue.
When employers receive a CA2700 certificate, it allows the use of the following NIC table letters for that employee or director:
- “J” for not contracted-out employment
- “L” for Contracted-Out Salary Related or Defined Benefit pension scheme membership
- “S” for Contracted-Out Money Purchase or Defined Contribution pension scheme membership
State Pension Age and deferment
HMRC does not usually allow deferment of Class 1 NICs for the tax year in which an employee reaches State Pension Age. The exception to this is if a director can show that with the operation of an Annual Earnings Period, they will pay sufficient NICs before they reach state pension Age.
Common Deferment Mistakes
The common mistakes made by payroll relate to the following scenarios, often when a certificate is received after the start of the tax year and payments have already been made:
- Standard contributions have already been calculated
- Directors who change contribution letters within the tax year
- Aggregation of earnings cases were the certificate is received for one of the sub employments, but not applied to the other.
When a CA2700 certificate is received and contributions have already been calculated on standard NIC category letters (such as A, D or F), then prior calculations need to reflect a refund and recalculation. A common mistake is to apply the CA2700 on any new contributions only and not correct the prior entries for the same tax year. A CA2700 certificate never applies to a part year. Systems like those supplied by Ceridian will offer recalculation tools to facilitate the change to ensure that correct contributions are accounted. For those that don’t, the employer is obliged to:
- Re-calculate the employee NICs due at 2% on the earnings above the ET for all periods of the tax year
- Refund to the employee any overpayment of NICs
- Make adjustments to next payments to the Collector of Taxes (the Accounts Office)
- Adjust the table contribution letter
- Keep a record of earnings on which the employee NICs should have been deducted
Equally, some employees apply for CA2700 certificates when they are in an aggregated earnings situation and an attempt is made to apply a standard NIC letter to one of the sub employment earnings and a CA2700 certificate to the other. This is not permissible – the CA2700 applies either to all employment under the tax reference being reported or none of them. The question is whether there are truly multiple employments or whether for NIC purposes there is only one employment.