Calculation of National Insurance Contributions

National Insurance contributions (NICs) are calculated and displayed according to these bandwidths:

Accumulating To-date Totals

Band	Description	Notes
1d	Earnings above the Upper Accrual Point up to and including the Upper Earnings Limit	NI letter rate uses the ‘U’ line on the NI tables
1c	Earnings above the Earnings Threshold up to and including the Upper Accrual Point	NI letter rate uses the ‘A’ line on the NI tables
1b	Earnings above the Lower Earnings Limit up to and including the Earnings Threshold	NIC Rebate for employees in COSR schemes is still calculated using this bandwidth
1a	Earnings at the Lower Earnings Limit

The to-date totals for NICs are calculated and stored in temporary files as a result of the calculation procedure. The relevant boxes on the To-Date form are updated when you use the Update command on the Utilities submenu.

Class 1A NICs on termination payments and sporting testimonials

Before 6 April 2020, the termination awards and sporting testimonials were subject to different rules for Income Tax and National Insurance contributions.

From 6 April 2020, the rules are more closely aligned.

Termination payments over a £30,000 threshold, which have not already incurred a Class 1 NICs liability, are subject to Class 1A Employers NICs.
Sporting testimonials over a £100,000 threshold, which have not already incurred a Class 1 NICs liability, are also subject to Class 1A Employers NICs.

Before 6 April 2020

Termination payments and sporting testimonials	Income Tax?	Employee NI?	Employer NI?
Below the thresholds	No	No	No
Above the thresholds	Yes	No	No

From 6 April 2020

Termination payments and sporting testimonials	Income Tax?	Employee NI?	Employer NI?
Below the thresholds	No	No	No
Above the thresholds	Yes	No	Yes*

*The Class 1A NIC charge is 13.8%.

An employee is made redundant after 6 April 2020 and given a termination award payment of £50,000.

In Opera 3 the employer creates two Payment Profiles:

The first payment profile for the amount that is exempt from Income Tax and National Insurance - with the 'Taxable', 'NI’able' and 'Class 1A NI’able' options cleared.
The second payment profile for the amount that is liable for Income Tax and Class 1A Employers National Insurance - with the 'Taxable' and 'Class 1A NI’able' options selected.

The termination payment will be split into two payments using the first payment profile (for £30,000 - the termination payment threshold) and the second payment profile (£20,000).

The Payroll calculation will calculate Income Tax and the Class 1A Employer National Insurance (13.8%) on £20,000. The Class 1A Employer National Insurance will be included in the employee's FPS submission for the pay period.

No Income Tax, or Employee or Class 1A Employer National Insurance will be applied to the £30,000.
Employee National Insurance will not be applied to the £20,000 amount.

When the employee's termination payment is up to £30,000, only one Payment Profile is required.