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National Insurance Only Schemes
Some employers need to deduct National Insurance contributions from their employees' pay without deducting any Income Tax. These arrangements are called National Insurance only schemes, and they apply in specific situations where your employee's earnings are subject to NICs bu...
Introduction
Some employers need to deduct National Insurance contributions from their employees' pay without deducting any Income Tax. These arrangements are called National Insurance only schemes, and they apply in specific situations where your employee's earnings are subject to NICs but are not taxable income. Understanding when and how to set up these schemes correctly is essential for meeting your HMRC reporting obligations.
When National Insurance Only Schemes Apply
A National Insurance only scheme is required when you make payments to employees that trigger Class 1 National Insurance contributions but are not subject to Income Tax. This situation is relatively uncommon and typically arises in specific circumstances where the nature of the payment or the employee's tax status means no Income Tax is due, yet National Insurance obligations remain.
You should only operate such a scheme when you're certain that the payments you're making fall into this category. If you're unsure whether your situation qualifies for a National Insurance only scheme, contact HMRC before setting one up.
How to Register a National Insurance Only Scheme
You cannot register for a National Insurance only scheme online. Instead, you must register by phone or post.
Contact HMRC's employer enquiries line for support. When you make contact, HMRC will arrange for an adviser to call you back to help you complete the registration process. They will ensure your payroll scheme is set up correctly to handle National Insurance contributions without Income Tax deductions.
Operating Your Payroll Under the Scheme
Once your National Insurance only scheme is registered, you must continue to submit Full Payment Summaries (FPS) to HMRC on or before each payday, just as you would with a standard PAYE scheme. However, the way you complete the FPS differs significantly.
What to Include on Your Full Payment Summary
When completing your FPS for earnings subject to National Insurance only, you must:
- Report the 'Gross earnings for NICs in this period' field with the actual earnings amount
- Complete all appropriate National Insurance contributions data fields
- Enter zero (0) in the 'Taxable pay' field
- Enter zero (0) in all associated tax fields
- Enter the tax code NT in the 'Tax code' field (this is mandatory even though no tax is being deducted)
The NT tax code stands for "No Tax" and signals to HMRC that no Income Tax should be deducted from these payments.
Correcting Mistakes
If you discover that you've made an error on a previous FPS and accidentally included amounts in the taxable pay or tax fields, you can correct this mistake on your next FPS. Simply enter zeros in the taxable pay and associated tax fields on the next submission to override the incorrect information.
You do not need to contact HMRC or submit a separate correction form for this type of error—the next FPS submission will put the record straight.
Keeping Records
Even though you're not deducting Income Tax, you must still maintain proper payroll records. Keep records of:
- All National Insurance contributions calculated and deducted
- Gross earnings for NICs purposes
- Full Payment Summaries you've submitted
- Payment dates and amounts
These records must be kept for at least three years from the end of the tax year they relate to, in line with standard HMRC requirements.
Getting Help
Operating a National Insurance only scheme can be complex, particularly as these arrangements are relatively uncommon. If you need guidance on whether your situation requires such a scheme, how to register, or how to complete your FPS submissions correctly, contact HMRC's Employer Helpline or your Customer Operations Employer Office.
HMRC can provide specific advice on your circumstances and ensure you're meeting your obligations correctly.
Key Points to Remember
- National Insurance only schemes are for specific situations where NICs are due but Income Tax is not
- You must register by phone or post—online registration is not available
- Continue submitting FPS returns on or before each payday
- Always use tax code NT and enter zero in all tax-related fields
- Report the actual gross earnings in the NICs earnings field
- Mistakes can be corrected on your next FPS submission
Setting up and operating a National Insurance only scheme requires careful attention to ensure you're reporting correctly to HMRC. The scheme structure is straightforward once established, but it's important to be certain this arrangement applies to your situation before proceeding.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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