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Encyclopedia > National Insurance
Taxation in the United Kingdom

This article is part of the series:
Politics and government of
the United Kingdom
Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        Taxation in the United Kingdom may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). ... Image File history File links UK_Royal_Coat_of_Arms. ... The Politics of the United Kingdom of Great Britain and Northern Ireland takes place in the framework of a constitutional monarchy in which the Monarch is head of state and the Prime Minister of the United Kingdom is the head of government. ...


Central government
taxation
HM Treasury
HM Revenue and Customs

Income tax ·  PAYE
VAT ·  National Insurance
Corporation tax
Inheritance tax ·  Stamp Duty
Capital gains tax ·  Excise tax
Motoring taxes
Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        Taxation in the United Kingdom may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). ... The new eastern entrance to HM Treasury HM Treasury, in full Her Majestys Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the UK Governments financial and economic policy. ... Part of the HMRC complex in Nottingham. ... UK Income Tax and National Insurance (2005–2006) UK Income Tax and National Insurance as a % of Salary (2005–2006) Income tax forms the bulk of revenues collected by the government. ... PAYE (or pay-as-you-earn) is a payroll deduction system for collecting income tax in the United Kingdom. ... vat can be a type of barrel used for storage. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        Corporation tax is a tax levied in the United Kingdom on the profits made by companies and associations that are resident for tax purposes, and on the profits of permanent establishments of non-UK resident... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        In the United Kingdom, Inheritance Tax was first introduced as a tax on estates in England and Wales over a certain value from 1796, then called legacy, succession and estate duties. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        In the United Kingdom, stamp duty is a form of tax charged on instruments (that is, written documents), and requires a physical stamp to be attached to or impressed upon the instrument in question. ... A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ... Her Majestys Customs and Excise (HMCE) was, until April 2005, a department of the British Government in the UK. It was responsible for the collection of Value added tax (VAT), Customs Duties, Excise Duties, and other indirect taxes such as Air Passenger Duty, Climate Change Levy, Insurance Premium Tax... Motoring taxation in the United Kingdom comes in a variety of forms. ...


Local government taxation
Local government

Council Tax ·  Business rates
Rates Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        Taxation in the United Kingdom may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). ... There is no single system of local government in the United Kingdom. ... The Council Tax is the main form of local taxation in England, Scotland and Wales. ... Business rates are a United Kingdom tax charged to businesses and other occupiers of non-domestic property. ... Rates are a type of taxation system in the United Kingdom and elsewhere, such as New Zealand, historically used to fund local government. ...



Part of the Taxation series
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UK Income Tax and National Insurance (2005–2006)
UK Income Tax and National Insurance (2005–2006)
UK Income Tax and National Insurance as a % of Salary (2005–2006)

National Insurance (NI) is a system of taxes and related social security benefits in the United Kingdom. It was first introduced in 1911, and expanded by the government of Clement Attlee in 1946. The tax component of the system consists of taxes paid by employees and employers on weekly earnings and other benefits-in-kind; the self-employed are taxed based upon profits. Such taxes are said to be National Insurance Contributions (NICs). Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_the_British_Virgin_Islands. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_the_Netherlands. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Peru. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_Tanzania. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Comparison of tax rates around the world is a difficult and... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... Image File history File links UK_Tax. ... Image File history File links UK_Tax. ... Image File history File links UK_Tax_(percent). ... Image File history File links UK_Tax_(percent). ... A tax is an involuntary fee paid by individuals or businesses to a state, or to functional equivalents of a state, including tribes, secessionist movements or revolutionary movements. ... Social security primarily refers to social welfare service concerned with social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. ... Year 1911 (MCMXI) was a common year starting on Sunday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Saturday of the 13-day-slower Julian calendar). ... Clement Richard Attlee, 1st Earl Attlee, KG, OM, CH, PC (3 January 1883 – 8 October 1967) was Prime Minister of the United Kingdom from 1945 to 1951. ... Year 1946 (MCMXLVI) was a common year starting on Tuesday (link will display full 1946 calendar) of the Gregorian calendar. ...


The benefit component of the system is a number of contributory benefits, that is ones where the claimant's previous contribution record determines the availability and amount of the benefit paid. The benefits provided are weekly income benefits and some lump sum benefits to participants upon death, retirement, unemployment, maternity and disability.

Contents

History

The name national insurance was adopted as an expression of the government's aspiration that the system should be qualitatively different from conventional general taxation such as income tax. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income...


The proposed differences that were enacted, or aspired to, included:

  • the revenue was expected to roughly equate to current spending on contributory benefits
  • no means testing of benefits - the amount of benefit paid in respect of any claim by a claimant was the same whether the claimant was rich or poor, depending only on the completeness of the claimant's contribution record
  • a cap on the system's scope for redistribution - above a certain level of earnings or profits no extra contributions were payable
  • the payment of a contribution by an employer for each employee comparable to that paid by the employee

Initially, the most important contributory benefits were the State Retirement Pension and Unemployment Benefit. The term means test refers to an investigative process undertaken to determine whether or not an individual or family is eligible to receive certain types of benefits from the government. ... Employment is a contract between two parties, one being the employer and the other being the employee. ... This article does not cite any references or sources. ... Unemployment benefits are payments made by governments to unemployed people. ...


With the introduction of employer payroll tax deduction (Pay-As-You-Earn or PAYE), employees' National Insurance contributions were collected along with income tax. This replaced the old system of purchasing a contribution certificate or stamp, but for many years some older Britons continued to describe making NI contributions as paying their stamp. This article is the current Taxation Collaboration of the Month. ... PAYE (or pay-as-you-earn) is a payroll deduction system for collecting income tax in the United Kingdom. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income...


As the system developed, the link between individual contributions and benefits was weakened, and the overall revenue from NI stopped being hypothecated. This meant that link between of overall social security budget and National Insurance revenue has been broken, with revenue from NI going into the general public purse and benefits similarly being funded out of the general public purse. Hypothecation is a pledge of property as security for a debt without transfer of possession. ...


Recent developments of the system have meant that National Insurance provides a significant part of the government's revenue (£90 billion in 2006-2007, approximately 17% of total government receipts). [1] At the same time it has become more redistributive as its structure has changed to remove the fixed upper contribution limits, albeit with a much lower rate payable by employees on income above a certain level. It has been mooted that the link between individual's contribution record and the remaining contributory benefits will be weakened further


NI has been criticised as a "stealth tax" and "an income tax in everything but name": in recent years governments have trumpeted the fact that income tax rates have not changed, while they have increased revenue by increasing the rates and scope of NI. At the same time the unfairness of a tax that is levied on the wage income of all workers but not on dividend or interest income has been criticised: at the extreme this leads to the contrast between a low-paid worker who has to pay the tax on his income and a wealthy owner of income-bearing assets who does not. Stealth Tax is a term used for revenue from sources controlled by a Government, that is not classed as tax, but still used by the Government to fund public services. ...


There have been proposals put forward by think-tanks to abolish employees' National Insurance altogether by rolling it up into income tax; these have yet to be adopted as a policy by a major political party.[2]


Contribution classes

National insurance contributions (NICs) fall into a number of classes. Class 1, 2 and 3 NICs paid are credited to an individual's NI account, which determines your eligibility for certain benefits - including the state pension. Class 1A, 1B and 4 NIC do not count towards benefit entitlements but must still be paid if due.


Class 1 contributions are paid by employees and their employers. They are deducted from their gross wages by the employer, with no action required by the employee. The employers also match these contributions (with the one exception below). There are three milestone figures which determine the rate of NICs to be paid: Lower Earnings Limit (LEL), Earnings threshold (ET) and Upper Earnings Limit (UEL).

  • Below the LEL, no NICs are paid.
  • Between the LEL and the ET, NICs are not paid, but are credited as if they were.
  • Between the ET and the UEL, NICs are paid at a rate of 11% on earnings by employees and 12.8% of earnings by employers.
  • Above the UEL, NICs are paid at a rate of 1% on earnings by employees and 12.8% of earnings by employers.

Unlike income tax the limits for class 1 NICs for ordinary employees are calcuated on a periodic basis, usually weekly or monthly depending on how the employee is paid. However those for company directors are always calculated on an annual basis, to ensure that the correct level of NICs are collected regardless of how often the director chooses to be paid. In the 2007 budget, the then Chancellor of the Exchequer Gordon Brown announced that in future the LEL and UEL would be aligned with the income tax basic rate band. [3] Look up budget in Wiktionary, the free dictionary. ... The Chancellor of the Exchequer is the title held by the British Cabinet minister responsible for all economic and financial matters. ... For others with the same or similar names, see Gordon Brown (disambiguation). ...


Class 1A contributions are paid by employers on the value of company cars and other benefits in kind of their employees and directors at rate of 12.8% of the value of the benefits in kind (from their P11Ds). P11D form is filled by employers for employees who earned at a rate of 8,500 pounds a year or more. ...


Class 1B were introduced on 6 April 1999 and are payable whenever an employer enters into a PAYE Settlement Agreement (a PSA) for tax. Class 1B NICs are payable only by employers and payment does not provide any benefit entitlement for individuals.


Class 2 contributions are fixed weekly amounts paid by the self-employed. They are due regardless of trading profits or losses, but people on small (low) earnings can apply for exception from paying and those on high earnings with liability to either Class 1 or 4 can apply for deferment from paying. While the amount is calculated to a weekly figure, they are typically paid monthly or quarterly. For the most part, unlike Class 1, they do not form part of a qualifying contribution record for contributions-based Jobseekers Allowance. In the United Kingdom Job Seekers Allowance (JSA) is a form of unemployment benefit that is paid by the government to people who are unemployed and seeking work. ...


Class 3 contributions are voluntary NICs paid by people that wish to fill a gap in their contributions record which has arisen either by not working or by their earnings being too low. The main reason for paying Class 3 NICs is to ensure that a persons contribution record is preserved for entitlement to the state pension, generally a person needs either 10 or 11 years for a minimum state pension (depending on sex and date of birth), although in certain cases fewer years may be required.


Class 4 contributions are paid by self-employed people as a portion of their profits, calculated with income tax at the end of the year, based on figures supplied on the SA100 tax return. Below the earnings threshold no class 4 NICs are due. Above the earnings threshold and below the upper earnings limit class 4 NICs are paid at a rate of 8% of trading profits. Above the upper earnings limit class 4 NICs are paid at a rate of 1% of trading profits. They do not form part of a qualifying contribution record for any benefits, including the state retirement pension. Look up Tax return in Wiktionary, the free dictionary For tax returns in the United States see Tax return (United States); for tax returns in Canada see Tax return (Canada). ...


People who are unable to work for some reason may be able to claim NIC credits. These are equivalent to Class 1 NICs, though are not paid for. They are granted either to maintain a contributions record while not working, or to those applying for benefits whose contribution record is only slightly short of the requirements for those benefits. In the latter case, they are unavailable to fill "gaps" in contribution records for some benefits.


Actuarial reviews

An actuarial evaluation of the long-term prospects for the National Insurance system is mandated every 5 years, or whenever any changes are proposed to benefits or contributions. Such evaluations are conducted by the Government Actuary's Department and the resulting reports must be presented to the UK Parliament. Damage from Hurricane Katrina. ... The Government Actuary’s Department (GAD) is a department of the Government of the United Kingdom responsible for providing actuarial advice to public sector clients. ...


National Insurance number

The National Insurance numbercard issued by the former Department of Health and Social Security to Zacarias Moussaoui
The National Insurance numbercard issued by the former Department of Health and Social Security to Zacarias Moussaoui

Children born and resident in the UK are assigned an NI number (referred to internally as a NINO), and receive a plastic card of similar proportions to a credit card with the number raised on the front shortly before their 16th birthday, and are advised to keep the card safe (only one replacement card may ever be issued over the lifetime of an individual).[4] However, allocation of this number might occur a long time before this occasion (the date can usually be established from the prefix letters used), and siblings may have consecutive numbers - this is dependent on the payment of Child Benefit. Image File history File links Download high-resolution version (1344x891, 67 KB) United States v. ... Image File history File links Download high-resolution version (1344x891, 67 KB) United States v. ... The Department of Health and Social Security was a ministry of the British Government for 20 years from 1968 until 1988, headed by the Secretary of State for Social Services. ... This article or section needs copy editing for grammar, style, cohesion, tone and/or spelling. ... Look up credit card in Wiktionary, the free dictionary. ... Child benefit (or childrens allowance) is a social security payment payable given to the parents or guardians of children. ...


Persons from abroad looking to work in the UK, or those to whom a number was not initially allocated as children, may apply for a number through the Department for Work and Pensions (DWP). The prefixes used are typically different from those used in the normal run. The Department for Work and Pensions is a department of the Government of the United Kingdom, created on June 8, 2001 from the merger of the Employment part of the Department for Education and Employment and the Department of Social Security. ...


The format of the number is two letters, six digits, and one optional letter. The example used is typically AB123456C. It is usual to pair off the digits - such separators are seen on forms used by government departments (both internal and external, notably the P45). In the United Kingdom and Ireland, P45 is the reference code of a form titled Details of employee leaving work. ...


In the case of AB 12 34 56 C, the first and second letter cannot be D, F, I, Q, U and V. The second letter also cannot be O. The first two character combinations BG, GB, NK, KN, TN, NT and ZZ are not used. The six digits are sequentially issued (siblings who are few years apart may notice their numbers are consecutive when the numbers are issued together), and the suffix letter is A, B, C, D or absent. The number is unique without the last letter - if there is AB 12 34 56 C, then there will be no AB 12 34 56 D (though it is possible that there will be AB 12 34 57 D). A common error found on documents containing an individual's NI number is the final letter being incorrect, though this error is non-fatal in that an individual can be identified without the last letter.


To validate a NINO the following regular expression can be used "^[A-CEGHJ-PR-TW-Z][A-CEGHJ-NPR-TW-Z] ?d{2} ?d{2} ?d{2} ?[ABCDFM]" In computing, a regular expression is a string that is used to describe or match a set of strings, according to certain syntax rules. ...


It is worth noting that, while an individual may be issued with a second NI number when all traces of their original number has been lost, these numbers never change. Some accountants often mistakenly advise their customers of a change, particularly in the suffix letter, where A referred to employment, B to self-employment, etc. The actual meaning of the suffix letter dates back to before NIRS (see below), and referred to the quarter in which that individual's annual record card was due for return, and is roughly (but not directly) linked to their date of birth. Accountant, or Qualified Accountant, or Professional Accountant, is a certified accountancy and financial expert in the jurisdiction of many countries. ...


As Britain does not, as yet, have a system of personal ID cards, and not everyone has a passport, the NI number is, along with the NHS number, one of only two systems which provide every adult in the country with a code number. Consequently, NI numbers are sometimes used for identification purposes in other contexts which have nothing to do with their original National Insurance purpose. This is despite a clear claim on the back of the NI card, and a smaller claim on the front, that it is not proof of identity. For Microsoft Corporation’s “universal login” service, formerly known as Microsoft Passport Network, see Windows Live ID. For other types of travel document, see Travel document. ...


On occasions, some people may have a 'temporary' NI number, which follows the format TN 01 23 45 F, where 'TN' stands for temporary number and is static and 'F' stands for female (or in the case of men 'M' for male), though the last letter may differ (even though it's not required), and the numbers in the mid-section are your date of birth. For example, if your date of birth was 1st December 1958, the temporary NI number would most likely be TN 01 12 58 F. Temporary NI numbers cannot be used to trace back any NI credits/your personal details, and are purely, temporary, and should be later replaced by your real NI number. These numbers are usually devised by employers where the person does not have a national insurance number, despite guidance from HM Revenue and Customs that this procedure should not be used.[5]


NIRS

National Insurance contributions for all UK residents and some non-residents are recorded using the NIRS computer software package (National Insurance Recording System, pronounced "nurse"). NIRS is currently in its second generation and is known within the Civil Service as NIRS/2 ("nurse two"). Image File history File links Gnome_globe_current_event. ... Image File history File links This is a lossless scalable vector image. ... The Roman civil service in action. ...


The original NIRS was a more archaic system first used in 1975 without direct user access to its records. A civil servant working within the Contributions Office (NICO) would have to request paper printouts of an individual's account which could take up to two weeks to arrive. New information to be added to the account would be sent to specialised data entry operatives on paper to be input into NIRS. Year 1975 (MCMLXXV) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Her Majestys Revenue and Customs (HMRC) is a new department of the British Government created by the merger of the Inland Revenue and Her Majestys Customs and Excise which came into formal effect on 18 April 2005. ...


NIRS/2 is a Microsoft Windows based system with several applications under its umbrella. These include individual applications to access or update an individual National Insurance account, to view employer's National Insurance schemes and a general work management application. Windows redirects here. ...


There has been some controversy regarding the NIRS/2 system from its inception in 1996 when problems with the new system attracted widespread media coverage. Due to computer problems, deficiency notices which used to be sent out on an annual basis stopped being issued in 1996. The Inland Revenue is currently (as of August 2004) running an exercise to catch up on a backlog of deficiency notices for the 1996-97 to 2001-02 tax years on the instructions of the Paymaster General. The exercise is due for completion in March 2005. Deficiency notices are due to be issued on an annual basis again from October 2004. Year 1996 (MCMXCVI) was a leap year starting on Monday (link will display full 1996 Gregorian calendar). ... The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Paymaster-General is a ministerial position in the UK. The portfolio consists of the workings of HM Revenue and Customs, formerly HM Inland Revenue and HM Customs and Excise, and reports to the Chancellor of the Exchequer. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ...


See also

This is a list of topics related to the United Kingdom. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... Social security primarily refers to social welfare service concerned with social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. ... The National Insurance Fund represents the funds of the National Insurance Scheme, set up by the British Government following World War II. In the Beveridge Report this was designed as part of a universal insurance system for all British people. ...

References

  1. ^ HM Treasury (2006-03-22). Budget 2006 (pdf) 19. Retrieved on 2006-08-10.
  2. ^ Institute for Public Policy Research (2005-06-06). The British Road to Social Justice. Retrieved on 2007-03-23.
  3. ^ The Daily Telegraph (2007-03-23). Tax ruse triggers election duel. Retrieved on 2007-03-23.
  4. ^ http://www.hmrc.gov.uk/nic/ynino.htm#c
  5. ^ http://www.hmrc.gov.uk/employers/taking_on.htm#7b2 HM Revenue and Customs: Taking on a new employee

Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... is the 81st day of the year (82nd in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... is the 222nd day of the year (223rd in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... is the 157th day of the year (158th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 82nd day of the year (83rd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 82nd day of the year (83rd in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 82nd day of the year (83rd in leap years) in the Gregorian calendar. ...

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