Employers pay National Insurance contributions on their employees' earnings and benefits. They are also responsible for collecting employees' Class 1 National Insurance contributions and income tax deductions through the PAYE system
What is employer Class 1 National Insurance?
Employers pay 'secondary' Class 1 National Insurance contributions (NICs) on their employees' earnings. Primary Class 1 NI contributions are an employee National Insurance contribution (also collected through PAYE).
The amount payable depends on how much the employee earns and their National Insurance category letter.
It is no longer possible for employees to opt out of the state second pension, and the NI rebate is no longer available for those employees.
The employment allowance reduces the amount of employer NICs payable by some businesses up to the allowance limit (currently £5,000 per year). The reduction is only available to organisations with a total NIC bill below £100,000. This means at least 90% of small businesses can claim the allowance.
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Employer Class 1 National Insurance rates
Employers pay Class 1 NICs of 15.05% on all earnings above the secondary threshold for almost all employees.
- £175 per week, £758 per month or £9,100 per year.
- £967 per week, £4,189 per month or £50,270 for employees aged under 21, apprentices aged under 25 and veterans.
- No NI is payable on earnings at or above the lower earnings limit up to and including the secondary threshold.
Upper secondary thresholds:
- £967 per week, £4,189 per month or £50,270 per year.
There is no longer a rebate of employer's NICs for employees in a personal or stakeholder pension scheme.
Secondary NIC rates for Freeport employees
Freeports are special areas within the UK which benefit from a range of tax incentives, relaxed customs and planning and development rights. Eligible businesses within a freeport tax site can benefit from a range of tax reliefs including Employer National Insurance Contributions.
Employers within a designated freeport tax site can apply a zero rate of secondary Class 1 NICs to the earnings of new employees up to £25,000. The rate can be applied for up to 36 months per employee. To be eligible, the employee must have started working on or after 6 April 2022 and must not have worked for the employer in the preceding 24 months. The employee must spend at least 60% of their working time within the freeport tax site.
Secondary class 1 NICs of 15.05% are payable on earnings above Freeport upper secondary threshold up to and including upper earnings limit.
Freeport upper secondary thresholds:
- £481 per week, £2,083 per month or £25,000 per year.
Is employer National Insurance payable on employee benefits?
Employer NICs are also payable on some employee benefits. This depends on the benefits being provided:
- Class 1 NICs may be collected in the normal way through PAYE. Tax may or may not need to be paid as well, depending on the benefit.
- You may need to report the benefits at the end of the year if they haven't already been handled via payroll. Class 1A NICs may or may not be payable on the value of the benefit. Again, this depends on the benefits in question.
There is also an exemption for certain "trivial benefits" worth less than £50 each. Directors of companies with five or fewer shareholders cannot receive more than £300 of trivial benefits in a tax year.
The detailed treatment of employer National Insurance contributions is complicated. Most employers use payroll software or a payroll service to handle this.
Note that almost all businesses are now required to report PAYE information in real time.
Is employer National Insurance payable on expenses?
Reimbursed expenses are exempt from tax and NICs, providing they are costs that have actually been incurred by the employee, such as:
- work-related travel and subsistence;
- subscriptions and fees;
- business entertainment expenses.
These expenses are also exempt from HMRC reporting requirements.
How to report expenses and benefits to HMRC
Where the expense or benefit is not exempt from NICs liability, or is provided under a salary sacrifice scheme, it is now usually reported via the monthly payroll. Expenses not "payrolled must be declared on a P11D.
To simplify reporting, employers can use scale rates or flat rates to reimburse employees, instead of the actual costs incurred. Scale rates include:
- HMRC-approved fuel advisory rates;
- rates agreed in writing by HMRC.
You can apply for a bespoke scale rate approval notice on the GOV.UK website.
Expenses and benefits reimbursed using approved scale rates do not need to be reported to HMRC. Approval notices must be renewed every five years.
Employer National Insurance: what is a PAYE settlement agreement?
Separately, employer's National Insurance contributions can be simplified by negotiating a PAYE settlement agreement with HMRC.
A settlement agreement can cover expenses and benefits which are:
- difficult to handle through PAYE (for example, where employees share a benefit).
Some items such as cash payments, beneficial loans or regular large benefits cannot be included.
Once you have agreed a settlement agreement, you can make a single Class 1B employer NIC payment by 22 October following the tax year it applies to, based on the total value of all the benefits covered by the agreement.