Does employee NIC primary threshold apply per month or per annum?

[elisamountout]

I understand if an employee earned below the primary threshold of £8,632 pa in 2019/20 then they should not pay any employee NIC.

However, if they only worked the last 2 months of the year (February and March 2020) and earned £4,316 in each of these months (£8,632 for the year), should they still be paying employee NIC? Their annual pay would be below the primary threshold (£8,632 total) but per month is above it (the monthly threshold would be £720).

E.g. Would it be expected to pay NIC in the month and then reclaim it after year end, or is NIC payable on limits set within the month not the year?

[Lambs]

E,

This is a good question but the answer is perhaps more technical than one might have hoped. USUALLY, by reference to your question, it would be by reference to the month, not the PAYE year. But there are exceptions.

NICs differ from PAYE tax. Most employees work on a 'cumulative' code, and their pay (and tax to date) is aggregated during the year, when working out how much tax they need to pay on a given pay date.

NICs for most employees, however, is worked against a weekly or monthly table/allowance, depending on whether or not they are paid weekly or monthly respectively. (There are of course provisions for those who are paid on irregular or unusual bases - see below). Normally, NIC does not 'care' if an employee's pay has increased or fallen from one pay date to the next. If your employee in question is an 'ordinary employee', then NICs should be applied on a monthly basis (assuming they were on a monthly salary). In this case it will mean that they have to pay NICs.

Directors used to be able to pay themselves a year's salary in one month, and effectively pay only a month's worth of NICs. This was addressed by what is now the Social Security (Contributions) Regulations 2001 - Statutory Instrument SI2001/1004 Regulation 8. Regulation 8 says that directors (or equivalents, from memory) have to work out their NICs on an annualised basis, broadly like Income Tax for most PAYE employees. In your scenario, a director might have no NICs to pay, for the reasons you have already recognised.

However, it is not as simple as that, because:

Special rules apply for employees who are subject to irregular / ad hoc payment dates, which MAY apply here, or

If he or she is a director, the date of appointment / engagement will be relevant. For example, if he or she were appointed as director only 2 months before the end of the tax year, then NICs are still calculated on a cumulative basis but only by reference to 2 months'-worth of NIC bands.

See Chapter 3 of https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/546053/CWG2_0816__v1.0.pdf - for ordinary employees and

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878168/CA44_2020_2021.pdf - if the employee in question is a director/rix

With regards,

Lambs