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In the UK and many other countries, there is a threshold below which no income tax is paid. It is an annual threshold so that you don't pay any income tax if your total earnings are below it in any tax year.

National insurance works similarly, except that the threshold is calculated weekly. If somebody works for one day a week for five weeks, they pay less tax than somebody working for one week and then taking the next four off. I would have thought those people should pay the same amount of tax.

Why is it arranged like this?

octopus
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2 Answers2

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History!

When NI started, people got a “stamp” every week and if you had over so many stamps on your card over the last year, you could get sickness and unemployment benefit. Some of the cost of the stamp was paid by the employer and some by the employee.

A lot of workers at the time where paid in cash at the end of the week, would sign up for a weeks work, and where earning too little to pay income tax.

Over time NI has changed from an insurance system, to just another type of income tax. But any party that admits this will never win elections, as they will be seen to be putting up income tax. NI can be put up without most people understanding it is an increase in tax!

Ian
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Why is UK National Insurance calculated weekly?

The smallest period of work paid by companies to their employees is typically a week due to the overheads and costs associated with running a payroll for their staff (printing payslips, calculating and reporting various taxes, benefits and allowances incl. NI and SSP to various government departments incl. HMRC). Article by Payroll Bureau Founder (see section 'Does it cost more to pay more frequently?'

Why is it arranged like this?

The UK tax system (incorrectly) assumes a consistent weekly income (i.e. you will be paid the same last week as this week) which results in the weekly NI income threshold of £155 (and other painful tax calculation systems like the Self-Assessment Payment-on-Account system if you have variable annual pay).

I would have thought those people should pay the same amount of tax.

Scenarios like you have described is why at the end of the tax year, a P60 and P11D is submitted to HMRC by your employer and a rebate can occur if you have paid too much tax as would happen in the case of the person who paid higher tax in one week vs the person paying the correct level of tax each week. In the end, they do end up paying the same amount of tax.

toadflakz
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