NI earnings bands
NI earnings bands are used in NI calculations, and in some other cases such as eligibility for statutory payments. Find out more about
the earnings bands >| Earnings band | Explanation |
|---|
| Lower Earnings Limit (LEL) | This is the minimum level of earnings that an employee needs to qualify for benefits such as statutory sick pay. If an employee earns more than the LEL but less than the PT, they don't pay NI. |
| Secondary Threshold (ST) | This band was introduced from 6 April 2011. Employer's NI is payable when an employee's earnings exceed this level. |
| Primary Threshold (PT) | This band was introduced from 6 April 2011. Employee's NI is payable on earnings above this level. |
| Upper Earnings Limit (UEL) | Employees whose earnings exceed the UEL pay NI at 2% on earnings above this level. Employers pay a different rate of NI on earnings above the UEL. |
| Upper Secondary Threshold | Employers NIC for employees under the age of 21 is payable on anything above this level. |
| Apprentice Upper Secondary Threshold | Employers NIC for apprentices under the age of 25 is payable on anything above this level. |
For more information about rates and thresholds please refer to the
HMRC website.
NI numbers
An NI number is a unique reference, issued by HMRC to identify the employee's national insurance contribution record.
If an employee doesn't know their NI number, you should use a temporary NI number and send a NINO Verification Request to HMRC via e-Submissions.
Find out more about employee NI numbers >
A valid UK NI number, often referred to as NINO, comprises of a prefix of two letters followed by six numbers and a single letter suffix. The only exception to this format is for temporary NI numbers, which has no prefix, the six digits are comprised of the employee's date of birth, and a suffix of M for male employees and F for female employees. For example, a woman born on 4 August 1973 is given a temporary NI number of 040873 F, with a blank prefix.
Sage Payroll validates any NI number you enter into the software, using the following rules:
| Prefix | Number | Suffix |
|---|
- Must be 2 letters
- The letters D, F, I, Q, U and V aren't used as either the first or second letter
- The letter O isn't used as the second letter
| 6 numbers | Letters A, B, C, D, M or F. |
Administrative numbers
HMRC and the Department for Work and (DWP) sometimes use internal reference numbers, which look like NI numbers and occasionally they may send you one of these instead of the correct NI number. They are not valid NI numbers and if you do receive one, you should contact HMRC to obtain the correct number. Administrative numbers use the following prefixes:
You may also receive a number which has two numbers followed by two letters and further numbers. This is also an internal reference number and isn't a valid NI number.
NI categories
NI categories refer to the contribution table letters under which NI is payable. For example, an employee on NI category A has their NI calculated using the figures in contribution table letter A.
An employee's NI category is dependent upon their circumstances. For example, employees over state pension age are assigned category C and, in specific circumstances, married women or widows can be assigned category B.
For more information about rates and categories please refer to the HMRC website.
Changing NI categories
If an employee is due to change NI category, for example due to their age, then typically the new NI category will apply for the whole month regardless of when the NI category change applies.
Some NI category changes require a document proving the employee is supposed to be on that new NI category, such as a CA4140, CF384, passport, or birth certificate for employees who have reached state pension age and are due to go onto NI Category C.
Some NI categories cannot be changed to mid year, such as moving from NI category A to J. In these scenarios, typically the employee or director would need to be reprocessed on either A or J for the whole year.
If you are unsure about any NI category changes, you should refer to HMRC for further guidance.
NI contributions
Sage 50 Payroll calculates NI contributions using the exact percentage method for any process date on or after 6 April 2022. In this calculation, the amount of each employee's pay that is subject to NI is calculated using the NI thresholds and rates for their NI category.
For any periods with a process date of 5 April 2022 or prior, your software uses the HMRC NI contributions tables to calculate NI for non-directors. The figures used in these tables are calculated in steps of £1.00 for weekly paid employees, and £4.00 for monthly paid employees, and are calculated at the mid-point of each step using the relevant percentages for that category.
NI calculates differently for directors. Processing directors >
- Employees under 21 can defer NI because they're already paying it in another job
For category Z, the percentages are as follows:
- Employee:
2% on earnings above the Primary Threshold. - Employer:
13.8% on all earnings above the Upper Earnings Limit / Upper Secondary Threshold.
NI contribution rebates
NI rebates are calculated for both employee and employer for employees who have a contracted out NI category >
Using the exact percentage method, the rebate is calculated as follows:
Employer's NI
- Calculate the Secondary Threshold for the relevant pay period minus the Lower Earnings Limit for the relevant period.
- Multiply this figure by the relevant rebate percentage.
Employee's NI
- Calculate the Primary Threshold for the relevant pay period minus the Lower Earnings Limit for the relevant period.
- Multiply this figure by the relevant rebate percentage.
If the employee's earnings are above the Lower Earnings Limit but below the Secondary Threshold, the employer receives both the employer's and the employee's rebate.
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