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.
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, age 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.
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:
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.
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. The dispensation regime will be replaced in 2016/17 by a new tax exemption.
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.
New businesses that started up between 22 June 2010 and 5 September 2013 might have been entitled to pay reduced employer’s National Insurance contributions. Most new employers qualified, provided that the principal place of business was outside Greater London, the South East and the East of England.
If you qualified, you were 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 ran for 12 months from the date your business started, but only covered employer’s National Insurance contributions due on earnings paid between 6 September 2010 and 5 September 2013. The holiday only applied to Class 1 National Insurance contributions.
For further information on National Insurance, see: