My client took a new employee who had worked for two months with another employer before joining him.
My client will employ this individual for a couple of months paying say £1000 per month.
After taking the last employer’s pay and current projected pay this individual’s earning was below Personal Allowance limit of £10,600 (Tax year 2015 -2016)
When I ran the payroll , HMRC Basic PAYE tool asked me to deduct Class 1 National Insurance from this employee’s pay.
I was confused as I calculated that this employee’s total pay in the whole tax year will be less than Primary Threshold of £672 x 12 = £8,064
I had been calculating National Insurance contribution like Income Tax and taking the National insurance thresholds to be same as Income Tax Threshold.
I researched and once again Chartered Institute of Tax Advisor’s(CIOT) website came to rescue. It informed me that national insurance thresholds are calculated on a weekly or monthly basis (depending on the payment cycle) unlike Income Tax where thresholds are calculated on a yearly basis.
Example of Hypothetical Emily was most illuminating. Visit the below mentioned page and
Ctrl + F “Emily” to find the example.
Link to the article : http://www.taxguideforstudents.org.uk/tax-essentials/what-is-national-insurance
Thank you CIOT