Class 1: Directors and employees
For the purposes of NICs, it is important to distinguish between employed and self-employed status. An employed status is generally indicated when:
There is a contract of service rather than a contract to provide services
The individual works set hours, gets holiday pay and overtime pay, and is supervised
There is a substantial amount of control over when and how the work is done
Work isn’t capable of being sub-contracted
A long engagement of working for the same person
The work done is an integral part of the business
The individual does not risk any of their own money
Employers need to take care where workers claim to be self-employed, because an error in the definition of the status can result in the employer being made to pay employer and employee NICs for past periods.
Class 1 NICs are paid by both an employee and their employer. The employee’s contribution is known as the primary contribution and the employer’s contribution is known as the secondary contribution.
Although we have stated that ...
Shortened demo course. See details at foot of page.
...t
There are also certain categories of occupation, listed below, where individuals are treated as employees and therefore liable for class 1 NICs, even if they are treated otherwise for income tax.
Office cleaners and domestic workers
Those who obtain temporary work through agencies
Some lecturers and instructors
Religious ministers
Some categories of workers in the film and TV industries
Sub-contractors providing labour only services
Some freelance workers in the film and television industries are treated by HMRC as self-employed.
Class 1A contributions
Most benefits in kind that an employee could receive are liable for employer’s contributions only. Examples include company cars and private medical insurance.
Where the benefit is considered part of earnings for the calculation of class 1 NICs, they will not also be charged to class 1A NICs. Non-taxable benefits, such as contributions to approved pension schemes, are free from liability for NICs. Trivial benefits costing £50 or less are free of NICs.
Class 1A NICs are paid at a single rate.
