Employment Tax

NIC earnings periods

Produced by Tolley
  • 19 Oct 2021 23:18

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • NIC earnings periods
  • What is the relevance of earnings periods?
  • Date of payment
  • Employees paid regularly
  • Employees who are not paid regularly
  • Employees starting work
  • Payment after the end of an employment
  • One-off payments
  • Change of earnings period
  • Mistimed payments
  • More...

NIC earnings periods

The basis of calculation of NICs due on a payment to an employee is based on the concept of ‘earnings periods’. SI 2001/1004, regs 2–9 set out the rules for employees paid at different intervals, namely:

  1. employees who are paid at regular intervals

  2. employees who are not paid at regular intervals, and

  3. directors

HMRC guidance is in NIM08000 onwards.

What is the relevance of earnings periods?

Class 1 NICs are calculated by reference to earnings periods rather than on a cumulative or an annual basis (although in certain circumstances, an individual’s earnings period can be one year).

Calculating the Class 1 NIC liability by reference to earnings periods means that the limits and thresholds are worked out per earnings period and used to determine the NIC liability for that earnings period. The Class 1 NIC liability for a year is the total of the liability determined for all earnings periods in that year. This differs from the treatment for tax where the liability is based on total earnings for the year. As a result, if a person works only for a few weeks in a year, they are likely to get a refund of tax, but the Class 1 NIC collected via PAYE will be correct as it is based on each individual earnings period.

The most common earnings periods are one week or one month and the HMRC tables of NIC thresholds include details of what each threshold is per week and per month as well as the overall yearly figure.

Date of payment

The date of payment is the date when NICs are due and, therefore, the due date is governed by the method of pay.

Cash ― the date on which the employee receives the cash or, if he regularly receives his pay by post, the date of posting or, if his pay has been posted but is not normally posted, the date on which the employer expects him to receive it.

Cheque / credited into bank account

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