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Any Answers Answered: NI contributions

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TAXtv's Giles Mooney and Tim Good kick off the new tax year by tackling two questions from the Any Answers forum on national insurance contributions and the tax implications of paying an employee a lower amount.  

7th Apr 2022
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To view the full questions and AccountingWEB reader answers click on the links below:

Employee asking for a lower payment

AccountingWEB member Erming has an hourly paid employee who has asked if it's possible to be paid a lower amount next month to avoid being pushed into a higher tax band. "They are looking at being paid for only a third of the hours they've worked with the other two thirds being paid in the next tax year," said the reader. "Technically it's possible but it doesn't sound right to me." 

NI contributions

AccountingWEB reader Jigs has been reviewing a new client's payroll and two directors have been paying themselves just below the lower earnings limit (LEL) for several years. "My understanding is that these years will not count as a NIC contribution for state pension purposes. Unfortunately the salary has been about £200 too low per annum. Is there any way around this other than them making voluntary Class 3 NIC's?"

As Giles Mooney points out, this question is topical considering Rishi Sunak's national insurance threshold announcement at last month's Spring Statement.

For the latest episode of TAXtv visit PTP Interactive.​ TAXtv is a monthly tax update programme available as an annual subscription, (11 issues plus budget editions) to view online, download from the internet or watch on DVD.

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By Hugo Fair
07th Apr 2022 16:39

Having always stuck to the simple mantra (for when PAYE needs to be applied) of "on date of payment, irrespective of when hours worked" - and having never been corrected in meetings with HMRC and DWP specialists - it was an eye-opener to hear Tim's reference to 'the date when a person becomes *entitled* to payment of earnings'.

So I've investigated further and, aside of course of finding that Tim is quite correct (which throws a lot of onus on the quality of the employment contract details), I found something else that was news to me ... the concept of a 'waiver' to that entitlement date:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42290

"It can happen that payment is made after the date the employee is entitled to be paid. For example, to help out a hard-pressed employer, employees may agree not to draw their pay. In this situation they are deemed to have been paid on the day they were entitled to be paid. However, if employees have effectively waived their rights to receive earnings before the date when entitlement arises they are not treated as having “received” earnings."

I think this may only apply where the waiver is 'forever' not just 'delayed', but the waters get murkier.

Thanks (3)