Employer's National Insurance contributions

Employers pay employer’s 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.

Employer’s Class 1 National Insurance

Employers pay ‘secondary’ Class 1 National Insurance contributions on their employees’ earnings. ‘Primary’ Class 1 National Insurance contributions are an employee National Insurance (also collected through PAYE).

The Class 1 National Insurance payable depends on employees’ earnings and whether they are members of a contracted-out pension scheme. If an employee opts out of the state second pension and joins a contracted-out occupational scheme, lower rates of employer’s Class 1 National Insurance are payable.

In 2013-14:

• Employers pay Class 1 National Insurance contributions for non-contracted out employees of 13.8% on all earnings from the secondary threshold (£148 per week) upwards.
• There is a 3.4% rebate on earnings between the lower earnings limit and the upper accrual point (£109–£770 per week) for contracted-out employees in salary-related occupational pension schemes.
• The 1.4% rebate on earnings between the lower earnings limit and the upper accrual point for contracted-out employees in money purchase occupational pension schemes has been abolished.
• There is no rebate of employer’s National Insurance contributions for employees in a personal or stakeholder pension scheme.

Employer’s National Insurance contributions — benefits

Employer’s National Insurance contributions are also payable on some employee benefits. The way these contributions are handled depends on the specific benefits being provided:

• Class 1 National Insurance contributions may be collected in the normal way through PAYE. Tax may or may not be deducted as well, depending on the benefit.
• You may need to report the benefits at the end of the year and Class 1A National Insurance contributions may or may not be payable on the value of the benefit.  Class 1A National Insurance contributions may or may not be payable on the value of the benefit. Again, this depends on the benefits in question and also how much the employee earns and whether the employee is a director of the company.

The detailed treatment of employer’s National Insurance contributions is complicated. Most employers use payroll software or a payroll service to handle this.

Note: the PAYE system has changed. Almost all businesses are required to report PAYE information in real time.

Simplifying employer’s National Insurance contributions

You can negotiate a dispensation with HMRC to cover expenses and benefits that employees are not taxed on — typically, ordinary business travel and entertainment expenses. Once the dispensation has been agreed, you do not need to report these or make any National Insurance contributions on them.

Separately, employer’s National Insurance contributions can be simplified by negotiating a payroll settlement agreement with HM Revenue & Customs.

An agreement can cover expenses and benefits which are minor, irregular or which are difficult to handle through PAYE (for example, where employees share a benefit). Some items such as cash payments or regular large benefits cannot be included.

Once you have agreed a payroll settlement agreement, you can make a single Class 1B employer National Insurance contribution based on the total value of all the benefits covered by the agreement and the tax due on them.

Employer’s National Insurance contributions holiday for new employers

New businesses that start up between 22 June 2010 and 5 September 2013 may be entitled to pay reduced employer’s National Insurance contributions. Most new employers qualify, provided that the principal place of business is outside Greater London, the South East and the East of England.

If you qualify, you are entitled to a reduction of up to £5,000 from your employer’s National Insurance contributions for each of your first ten employees. The holiday runs for 12 months from the date your business started, but can only cover employer’s National Insurance contributions due on earnings paid between 6 September 2010 and 5 September 2013. The holiday only applies to Class 1 National Insurance contributions.

For further information on National Insurance, see:

• PAYE
• Self-employed National Insurance
• Employee National Insurance