Tax and NI payments problem

[dmini]

I got pushed across to Parasol last year because they were on my agencies psl list, and because of family I am very restricted on when & where I can contract. It has been shaky throughout, however, after running their year end, on a payslip saying period 1, I got NO NI (no payment) allowances at all - starting straight at the higher rate - ie 12.8 for employers NI. They say this is because it relates to invoices from last year, so has been counted into last years income, although year to date totals on payslip etc, all mark it as period 1 this year. Can anyone give any insight. I cannot get a sensible response from them, except the "we are right & you are wrong & NI is cumulative over the year & will sort itself out!!!!". As the tables are period based and not cumulative, I don't believe them. Am I right, or have I missed some piece of IR legislation

[BlasterBates]

Well Parasol have to calculate your expected earnings for the IR, and the IR would expect you to earn the same as last year, so you would need some justification. If you wrote a justification I presume Parasol would pass it on but basically the IR would have to approve it. If Parasol has a contract with you for a fixed salary then you would pay according to the contract. If its based on earnings then thats when it becomes an estimate. As time goes by you'll find them readjusting your NI so yes if you pay too much early on you'll pay less later. I don't see a problem here other than you might pay a bit less now, and have a bit of avaialble cash that you may have to give back later on anyway.

[ASB]

I got pushed across to Parasol last year because they were on my agencies psl list, and because of family I am very restricted on when & where I can contract. It has been shaky throughout, however, after running their year end, on a payslip saying period 1, I got NO NI (no payment) allowances at all - starting straight at the higher rate - ie 12.8 for employers NI. They say this is because it relates to invoices from last year, so has been counted into last years income, although year to date totals on payslip etc, all mark it as period 1 this year. Can anyone give any insight. I cannot get a sensible response from them, except the "we are right & you are wrong & NI is cumulative over the year & will sort itself out!!!!". As the tables are period based and not cumulative, I don't believe them. Am I right, or have I missed some piece of IR legislation

From what you have said Parasol are simply wrong. From a POV of PAYE then it is the date of payment which is important.

However, this does assume that you are simply an employee of parasol.

[boredsenseless]

I got pushed across to Parasol last year because they were on my agencies psl list, and because of family I am very restricted on when & where I can contract. It has been shaky throughout, however, after running their year end, on a payslip saying period 1, I got NO NI (no payment) allowances at all - starting straight at the higher rate - ie 12.8 for employers NI. They say this is because it relates to invoices from last year, so has been counted into last years income, although year to date totals on payslip etc, all mark it as period 1 this year. Can anyone give any insight. I cannot get a sensible response from them, except the "we are right & you are wrong & NI is cumulative over the year & will sort itself out!!!!". As the tables are period based and not cumulative, I don't believe them. Am I right, or have I missed some piece of IR legislation

PAYE and NI are cumulative as you and others have said, however the scheme works by trying to smooth out the tax hikes over the year otherwise December would be a very bad month for a lot of permies as their cumulative salary tips over the 40% tax threshold.

There are only two ways to do this

1) a straightforward 1/12 of your salary - which as a contractor you don't have

2) An estimate based on either contract value or last years earnings

The IR prefer it to be based on concrete figures from the year before, over time though it evens out and you won't pay any more than you have too! And if you do you'll get it back

[ASB]

PAYE and NI are cumulative as you and others have said, however the scheme works by trying to smooth out the tax hikes over the year otherwise December would be a very bad month for a lot of permies as their cumulative salary tips over the 40% tax threshold.

There are only two ways to do this

1) a straightforward 1/12 of your salary - which as a contractor you don't have

2) An estimate based on either contract value or last years earnings

The IR prefer it to be based on concrete figures from the year before, over time though it evens out and you won't pay any more than you have too! And if you do you'll get it back

Not exactly. There are two elements and no smoothing as you suggest (although the effect of the calculation does smooth it).

Tax.

This is calculated based on earnings to date and tax already paid. In any given period the total tax due to date is calculated and the tax paid so far is deducted from this amount. This provides the smoothing you talk about. The only figure that is appropriate for Tax is payments that have been really been received. This does not have the effect of charging you 40% tax suddenly, the tables factor this in.

NI.

Calculation depends upon whether you are a director or not.

In the event of an director NI should be calculated on a cumulative basis (i.e. charegd on the total in excess of the primary threshold and anything already paid deducted).

In the event of an employee it is based on the amount paid in any given month (pay period). If you earn 5000 one month and zero the next that is simply tough. [in the same way as if you have more than one job the NI you pay can exceed the nominal employees maximum].

[expat]

NI.

Calculation depends upon whether you are a director or not.
...
In the event of an employee it is based on the amount paid in any given month (pay period). If you earn 5000 one month and zero the next that is simply tough.

Isn't that good? Max employee's NI one month and then zero the next, as against (probably) max NI both months.

[ASB]

Isn't that good? Max employee's NI one month and then zero the next, as against (probably) max NI both months.

In the case I cited it would be. I meant to say 500 one month zero the next which would be bad.

But, if this is a pattern those nice boys at HMCR would simply decree that you pay period is two monthly and then you would not get the advantage (or disadvantage). This prevents to a certain extent companies being a bit creative about pay frequency to benefit EE's NI.

It is also the reason that all directors are treated as having an annual pay period. The normal trick was to pay everything in one month thus avoiding quite a lot of NI on large salaries. (ER's ni was still capped then).