Taxation in the United Kingdom
This article is part of the series: Politics and government of the United Kingdom
Central government
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
Local government
Council Tax Rates · Business rates
Taxation by country Australia • British Virgin Islands Canada • China • Colombia France • Germany • Hong Kong India • Indonesia • Ireland Netherlands • New Zealand Peru • Russia • Singapore Tanzania • United Kingdom United States • European Union  v • d • e  Tax rates around the world Tax revenue as % of GDP
view • talk • edit • project

National Insurance (NI) is a system of taxes and related social security benefits in the United Kingdom. Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) 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 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) For other uses see Paye (disambiguation PAYE ( Pay As You-Earn) is an amount collected by Employers on behalf of the government Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Throughout this article the unqualified term "pound" and the £ symbol refer to the United Kingdom pound. 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 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 A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Motoring Taxation in the United Kingdom comes in a variety of forms Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Council Tax is the system of local Taxation used in England, Scotland and Wales to part fund the services provided by local government in each Rates are a type of taxation system in the United Kingdom, and in places with systems deriving from the British one used to fund Local government. Business rates is the commonly used name of non-domestic rates, a Tax on the occupation of non-domestic property Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product Social security primarily refers to a Social insurance program providing social protection or protection against socially recognized conditions including poverty old The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located It was first introduced by the National Insurance Act 1911, and expanded by the government of Clement Attlee in 1946. The National Insurance Act 1911 is an Act of Parliament of the United Kingdom, passed in 1911 Clement Richard Attlee 1st Earl Attlee, KG, OM, CH, PC ( 3 January 1883 &ndash 8 October 1967 Year 1946 ( MCMXLVI) was a Common year starting on Tuesday (link will display full 1946 calendar of the Gregorian calendar. 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).

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 1 History 2 Contribution classes 2.1 Class 1 2.1.1 Class 1A 2.1.2 Class 1B 2.2 Class 2 2.3 Class 3 2.4 Class 4 3 Actuarial reviews 4 National Insurance number 5 NIRS 6 See also 7 References 8 External links

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.

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 Employment is a Contract between two parties, one being the employer and the other being the employee. A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity. 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. Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding For other uses see Paye (disambiguation PAYE ( Pay As You-Earn) is an amount collected by Employers on behalf of the government 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. ^[1]

As the system developed, the link between individual contributions and benefits was weakened. The National Insurance Fund is still nominally hypothecated, and national insurance payments cannot be used to fund general government spending, although as much of the fund is invested in government securities it is available for borrowing by the government for spending on capital projects, like schools and hospitals. The National Insurance Fund represents the funds of the National Insurance Scheme set up by the British Government following World War II See also Hypothec. The original use of the word hypothecation was for a pledge of property as collateral for a Debt without National Insurance contributions are paid into the various classes of National Insurance AFTER deduction of monies specifically allocated to the National Health Service. The National Health Service is the name commonly used to refer to the four Publicly-funded healthcare systems of the United Kingdom collectively or individually (although However a small percentage is transferred from the fund to the NHS from certain of the smaller sub-classes. Thus the NHS is partially funded from NI contributions but not from the NI Fund. ^[2]

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). ^[3] 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. Stealth Tax is a term used for a Tax levied in such a way that is largely unnoticed or not recognized as a tax. 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.

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. ^[4]

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

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). In this context "earnings" refers to an employee's wage or salary.

• Below the LEL, no NICs are paid because no benefits can accrue on earnings below this limit.
• On salaries above the LEL and below the ET, NICs are not paid, but are credited by the government as if they were. This effectively assists the working poor who do get benefits.
• On salaries between the ET and the UEL (equivalent to £5,225 to £34,840 per annum), NICs are collected at the rate of 23. 8% (11% paid by the employee and 12. 8% by the employer). ^[5]
• On the portion above the UEL, the total rate drops to 13. 8% (1% paid by employees and 12. 8% by the employer).

Unlike income tax the limits for class 1 NICs for ordinary employees are calculated 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. Budget (from French bougette, purse generally refers to a list of all planned expenses and revenues The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all Economic and Financial WikipediaManual of Style (biographies#Academic titles --> James Gordon Brown (born 20 February 1951 is ^[6]

Class 1A

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). Form P11D ( Expenses and Benefits) is filed by UK employers for each director and for each employee earning over £ 8500 per year and sent to the tax

Class 1B

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

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 Jobseeker's Allowance ( JSA) colloquially known as The Dole, is a form of Unemployment benefit that is paid by the

Class 3

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 person's contribution record is preserved to provide entitlement to the state pension. Generally a woman currently needs 10 years of contributions and a man 11 years for a minimum state pension. In certain cases (e. g. parents and carers) fewer years may be required.

Class 4

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.

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. An actuary is a business professional who deals with the financial impact of risk and uncertainty Such evaluations are conducted by the Government Actuary's Department and the resulting reports must be presented to the UK Parliament. The Government Actuary’s Department (GAD is a department of the Government of the United Kingdom responsible for providing Actuarial advice to Public sector

National Insurance number

People 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). The Department of Health and Social Security was a ministry of the British Government in existence for twenty years from 1968 until 1988 Zacarias Moussaoui ( Arabic: زكريا موسوي; born May 30 1968 is a French citizen who was convicted of conspiring to kill citizens A credit card is part of a system of Payments named after the small Plastic card issued to users of the system ^[7] 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. Child benefit (or family allowance children's allowance is a Social security payment disbursed to the parents or guardians of Children Child benefit is means-tested

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 Department for Work and Pensions (or DWP) ( Welsh: Adran Gwaith a Phensiynau) is the largest government department in the Government The prefixes used are typically different from those used in the normal run.

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 the Republic of 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]"

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. In Computing, regular expressions provide a concise and flexible means for identifying strings of text of interest such as particular characters words or patterns of characters 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. An accountant is a practitioner of Accountancy, which is the measurement disclosure or provision of assurance about financial information that helps managers investors 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.

As the UK 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. A passport is a document issued by a national government which certifies for the purpose of international travel the identity and nationality of its holder 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.

In the past, employers sometimes allocated their employees a temporary insurance number, which followed the format TN 01 23 45 X, where 'TN' stands for temporary number and is static and X is usually M for male in the case of men or F for female in the case of women and the numbers in the mid-section are the employee's date of birth. In the case of a woman born on 1st December 1958, for example, 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/ personal details. HMRC now discourages the use of these numbers. ^[8]

Another type of temporary NI number is the Revenue issued "temporary reference" used when HMRC is unable to trace a taxpayer's original NI number. It follows the format 63T12345.

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"). See also Bureaucrat The term civil service has two distinct meanings Branch of governmental service in which individuals are hired on the basis

The original NIRS was a more archaic system first used in 1975 without direct user access to its records. Year 1975 ( MCMLXXV) was a Common year starting on Wednesday (link will display full calendar of the Gregorian calendar. 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.

NIRS/2 is a Microsoft Windows based system with several applications under its umbrella. Microsoft Windows is a series of Software Operating systems and Graphical user interfaces produced by Microsoft. 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.

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. Year 1996 ( MCMXCVI) was a Leap year starting on Monday (link will display full 1996 Gregorian calendar) Due to these 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 Inland Revenue was until April 2005 a department of the British Government responsible for the collection of direct taxation, including "MMIV" redirects here For the Modest Mouse album see " Baron von Bullshit Rides Again " HM Paymaster General is a ministerial position in the United Kingdom. The exercise is due for completion in March 2005. Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. Deficiency notices are due to be issued on an annual basis again from October 2004. "MMIV" redirects here For the Modest Mouse album see " Baron von Bullshit Rides Again "

See also

• Regressive tax
• National Insurance Fund

References

External links

• National Insurance Contributions and Benefits
• HM Revenue and Customs
• What National Insurance contributions do I need to pay? interactive tool on the Business Link website
• Introduction to National Insurance, from UK government website Directgov
• Government Actuary's Department page for National Insurance
• UK Government Data Standards Catalogue - National Insurance Number - The official UK government definition of the NI number format. Business Link is the United Kingdom Government’s multi-channel support service for business of all sizes for all phases of growth from start-up to succession Also includes links to the XML Schema data type definition in the CitizenIdentificationTypes schema published by the Office of the e-Envoy.
• UK NI Contribution Record Errors
• Benefits fiasco leaves millions out of pocket
• Widespread errors hit state pensions

---

© 2009 citizendia.org; parts available under the terms of GNU Free Documentation License, from http://en.wikipedia.org
Dapyx Software network: MP3 Explorer | Ebook Manager | Zenithic