ACCA F6 FA09 Study Text 2010

Подождите немного. Документ загружается.

Paper F6 (UK)

Taxation FA2009

CHAPTER

National insurance

contributions

Contents

1 Class 1 NICs

2 Class 1A NICs

3 Class 2 NICs and Class 4 NICs

Paper F6 (UK): Taxation FA2009

216 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Class 1 NICs

 The scope of Class 1 NICs

 The calculation of primary and secondary Class 1 NICs

 The calculation of directors’ Class 1 NICs

1 Class 1 NICs

1.1 The scope of Class 1 NICs

If an individual is employed, he is personally liable to Class 1 primary NI

contributions. In addition, his employer (whether a sole trader, a partnership or a

company) is liable to Class 1 secondary and Class 1A contributions for the

individual (employee).

These are commonly referred to as employee’s NICs and employer’s NICs.

Both Class 1 primary and Class 1 secondary contributions are paid to HMRC under

the PAYE system. The employer acts as a collector of taxes on behalf of HMRC and

deducts the primary contributions from the employee’s salary/wages before

payment.

The due date of payment for Class 1 primary and secondary NICs is the 19

every month (i.e. 14 days after the end of each tax month, which is defined as the 6

of one month to the 5

of the following month).

Class 1 secondary contributions paid by the employer are part of the total cost of

employing staff and are charged against profit in the financial accounts. The

contributions are incurred wholly and exclusively for the purposes of the trade and

are therefore allowable deductions in the employer’s adjustment of profit

computation.

Employees and employers are assessed to Class 1 primary and secondary

contributions:

 on a cash receipts basis

 for an earnings period

 based on the employee’s cash earnings

 if they are within the appropriate age limit.

Cash receipts basis

Taxing an employee on a cash receipts basis means that the employee and employer

are assessed to NICs in the week or month in which the cash is paid to the

employee.

Chapter 12: National insurance contributions

Earnings period

If an employee is paid weekly, his NICs are calculated on a weekly basis using

weekly limits and rates. If he is paid monthly, his NICs are calculated on a monthly

basis using monthly limits and rates.

The weekly and monthly limits are calculated by dividing the annual limits by 52

weeks or 12 months. It is important to calculate NICs using the weekly or monthly

rates where the employee’s cash earnings are not received evenly throughout the

year. For example, where an employee receives a weekly wage of £200 per week and

a bonus in the Christmas week of £500, the calculation must be made for each week

separately.

However in the examination, questions will require calculations to be made using

the annual limits and rates. The appropriate limits and rates required for the

examination questions will be given in the tax rates and allowances sheet.

Cash earnings

An employee’s cash earnings are calculated as follows:

Cash earnings for Class 1 NICs £

Salary/wages X

Bonuses/commissions

Any other cash receipts and cash benefits

(e.g. excess mileage allowance)

Cash and non-cash vouchers

excluding vouchers exempted under the benefit rules

(e.g. childcare vouchers up to £55 per week)

Receipts of marketable assets that can be converted into cash

(e.g. gold bars, fine wines, shares, diamonds)

Cash earnings for Class 1 NICs X

Note that cash earnings is not the same as the employment income assessment, as it

is calculated before any allowable deductions (e.g. occupational pension scheme

contributions, subscriptions).

Cash earnings also excludes the following:

 exempt benefits per employment income rules

 non-cash benefits (e.g. company car, fuel, living accommodation)

 business expenses reimbursed by the employer

 tips from third parties.

Paper F6 (UK): Taxation FA2009

218 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Appropriate age limit

Class 1 NIC liabilities are only payable if the employee is at least 16 years old.

Liability to pay starts on the employee’s 16

birthday and ends on the employee’s

birthday for women and 65

birthday for men.

1.2 The calculation of primary and secondary Class 1 NICs

The annual limits and rates for Class 1 NICs are as follows:

Cash earnings Employee primary

Employer secondary

First £5,715 Nil

Nil

£5,716 - £43,875 11

12.8

Excess over £43,875 1

12.8

You do not need to learn these rates. The appropriate limits and rates required for

any examination question will be given in the tax rates and allowances sheet.

Example

Peter and Paula are both aged 35 and are employed by Quality Games Ltd. Their

remuneration for 2009/10 is as follows:



Peter Paula

 £ £

Salary 60,000 24,000

Bonus 8,000 Nil

Carbenefit 3,450 Nil

Childcarevouchers Nil £60perweekfor46weeks

Employer’spensionschemecontribution 3,600 1,440

Employee’spensionschemecontribution 2,400 960

Required

Calculate all of the Class 1 NICs payable by the employer to HMRC in respect of

Peter and Paula for 2009/10 using the annual limits and rates.

Answer

(1) Calculate cash earnings

 Peter Paula

 £ £

Salary 60,000 24,000

Bonuses 8,000 0

Childcarevouchersinexcessof£55perweek:

(£60‐£55)×46weeks

0 230

CashearningsforClass1NICs 68,000 24,230

Chapter 12: National insurance contributions

The car benefit is excluded as it is a non-cash benefit. The employer’s pension

contributions are excluded as they are an exempt benefit. The employees’

pension contributions are ignored as pension deductions are not allowed for

NIC purposes.

(2) Calculate the NICs for the employee and the employer

The requirement of the question is to calculate all the Class 1 NICs that the

employer has to pay to HMRC. In addition to paying the employer’s Class 1

secondary contributions, the employer also pays the employees’ Class 1

primary contributions to HMRC on behalf of the employees, under the PAYE

system.



Peter Paula

 TotalClass1

NICspayable

byQuality

GamesLtd

 £ £  £

Class1primarycontributions



(£43,875‐£5,715)×11% 4,198 

(£68,000‐£43,875)×1% 241 

(£24,230‐£5,715)×11% 2,037  2,037

 4,439  4,439

Class1secondarycontributions



(£68,000‐£5,715)×12.8% 7,972  7,972

(£24,230‐£5,715)×12.8% 2,370  2,370

 12,411 + 4,407 = 16,818

1.3 The calculation of directors’ Class 1 NICs

The calculation of directors’ Class 1 NICs is the same as for other employees, except

that the NICs are always calculated assuming an annual earnings period,

regardless of the actual earnings period. Therefore the weekly and monthly rates are

never used for directors.

This is because directors, as senior management in an organisation, determine when

employees will receive their remuneration, including their own. Without these

special rules, directors could avoid Class 1 NICs by paying themselves a low salary

each month and a large bonus in one particular month.

Paper F6 (UK): Taxation FA2009

220 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Class 1A NICs

 The nature of Class 1A NICs

 The basis of calculating Class 1A NICs

2 Class 1A NICs

2.1 The nature of Class 1A NICs

Class 1A NICs are payable by employers only, not employees.

They are charged on the non-cash benefits provided by the employer to higher paid

employees (e.g. company cars, private fuel, living accommodation).

There is no liability for Class 1A NICs on benefits provided to lower-paid

employees.

Note that non-cash benefits exclude:

 exempt benefits (as defined for the employment income rules)

 non-cash vouchers (as these are either specifically exempt or, if not exempt,

liable to Class 1 primary and secondary NICs, not Class 1A NICs).

2.2 The basis of calculating Class 1A NICs

Class 1A NICs are charged at 12.8% on the amount of the benefit measured using

the employment income rules.

The due date of payment of Class 1A NICs is 19 July following the end of the tax

year, i.e. 19 July 2010 for 2009/10.

Class 1A contributions paid by the employer are part of the total cost of employing

staff and are charged against profit in the financial accounts. The contributions are

incurred wholly and exclusively for the purposes of the trade and are therefore

allowable deductions in the employer’s adjustment of profit computation.

Example

Robert is employed by Swain Products Ltd. In 2009/10 he received the following

benefits from his employment:

(a) A new petrol-engined company car costing £16,500 with a list price of £17,600

and CO

emissions of 208 g/km. Robert contributes £40 per month for the use

of the car.

(b) All fuel, which cost the company £4,440 for the year 2009/10.

Chapter 12: National insurance contributions

(d) Private medical insurance which cost the company £1,100.

(e) Private use of a video camera with a market value of £350 when first made

available.

Required

Calculate the Class 1A NIC payable by Swain Products Ltd on 19 July 2010.

Answer

(1) Calculate the assessable benefits under the employment income rules



g/km

 Petrol

%

2emissions(roundeddowntonearest5g/km) 205 

BaselevelofCO2emissions (135) 



–

–––––

–

––––––––––––––––



 70 ÷5 14



–

–––––

–

––––––––––––––––



Minimumpercentage15

 

–––––––––––––––––––––––––––

Appropriatepercentage29

 

–––––––––––––––––––––––––––



 £ £

Manufacturer’slistprice 17,600 at29% 5,104

Minus:Contributionfortheuseofthecar(£40×12)(480)

 

–––––––––––––––––––––––––––

Carbenefit4,624



Privatefuelbenefit(£16,900×29%)4,901



Parkingspaceatworkplace=exemptbenefitNil



Privatemedicalinsurance(costtoemployer)1,100



Privateuseofvideocamera(£350×20%)70

 

–––––––––––––––––––––––––––

TotalbenefitsliabletoClass1ANICs10,695

 

–––––––––––––––––––––––––––

(2) Calculate the Class 1A NICs at 12.8%

Class1ANICs=£10,695×12.8%= £1,369



––––––––––––

–

–––––––––––––––––

Paper F6 (UK): Taxation FA2009

Class 2 NICs and Class 4 NICs

 Class 2 NICs

 Class 4 NICs

 The calculation of Class 4 NICs

3 Class 2 NICs and Class 4 NICs

3.1 Class 2 NICs

Class 2 NICs are paid by self-employed individuals (i.e. sole traders and each

partner in a partnership).

For 2009/10 Class 2 NICs are a flat rate of £2.40 per week. This rate is given in the

tax rate and allowances in the examination.

The maximum Class 2 NICs payable in 2009/10 are therefore £125 (£2.40 × 52).

However, they are only payable if the self-employed individual:

 has earnings in excess of £5,075, and

 is within the appropriate age limit.

Appropriate age limit

As for Class 1 NICs, an individual starts to pay Class 2 NICs on his/her 16

birthday. Liability to pay ends on the individual’s 60

birthday for women and 65

birthday for men.

Class 2 NICs are usually paid monthly by direct debit, but the individual can ask for

quarterly billing if he wishes.

Class 2 NICs are a personal tax on the self-employed individual, not the

unincorporated business. Therefore if the Class 2 NICs are paid for by the business,

they are not allowable as they are a personal expense of the owner and treated as an

appropriation of profit. They must be added to profit in the adjustment of profit

computation if they have been accounted for as an expense in the business accounts.

3.2 Class 4 NICs

Class 4 NICs are paid by self-employed individuals (i.e. sole traders and each

partner in a partnership), in addition to Class 2 NICs.

Class 4 NICs are paid together with the individual’s income tax liability under the

self assessment system.

Chapter 12: National insurance contributions

Self-employed individuals are assessed to Class 4 NICs:

 based on the profits for a tax year

 if the individual is within the appropriate age limit.

Profits for Class 4 NICs purposes

The starting point for the profits calculation is the trading income assessment for the

tax year, calculated in the normal way (e.g. by applying the CYB rule or the opening

or closing year rules). This is adjusted as shown below to calculate profits for Class 4

purposes:

Trading income assessment for the tax year X

Minus

Trading losses (X)

Profits for Class 4 purposes X

Appropriate age limit

Liability to pay Class 4 NICs depends on the age of the self-employed individual at

the start of the tax year. The individual starts to pay if he is aged 16 or over at the

start of the tax year. The liability to pay ceases in the tax year after the individual

has their 60

birthday (for women) or their 65

birthday (for men).

As is the case for Class 2 NICs, Class 4 NICs are a personal tax on the self-employed

individual, not the unincorporated business. Therefore if the Class 4 NICs are paid

for by the business, they are not allowable as they are a personal expense of the

owner and treated as an appropriation of profit. They must be added to profit in the

adjustment of profit computation if they have been accounted for as an expense in

the business accounts.

3.3 The calculation of Class 4 NICs

The annual limits and rate for Class 4 NICs are as follows:

Profits Rate for Class 4 NICs

First £5,715 Nil

£5,716 - £43,875 8

Excess over £43,875 1

Example

Sarah is self-employed, aged 39, and has been trading for many years. Her results

for the last two years are as follows:

Yearended Adjustedprofitaftercapitalallowances

 £

31May2009 45,000

31May2010 43,000

Paper F6 (UK): Taxation FA2009

Sarah has non-trading income of £600 (gross) each year.

Required

Calculate the Class 4 NICs Sarah is liable to pay for 2009/10.

Answer

(1) Calculate profits for Class 4 NIC purposes for 2009/10

 £

Tradingincome(CYB=y/e31May2009) 45,000

Minus Tradinglosses (Nil)

ProfitsforClass4purposes 45,000

(2) Calculate the Class 4 NICs

Class4contributions £

(£43,875‐£5,715)×8% 3,053

(£45,000‐£43,875)×1% 11

 3,064