NIM24170 et seq provides guidance on the
calculation method used to determine the Class 1, 2 and 4 NICs
annual maximum liability for a contributor who is both employed and
self- employed during the same tax year. The calculation method
shown applies to tax years from 2003/2004 onwards. For guidance on
the Class 1, 2 and 4 NICs maximum for tax years before 2003/2004
see
NIM24120 et seq.
The following example illustrates the Class 1, 2 and 4 NICs
maximum calculation for a contributor who falls into Case 1 of
regulation 100(3). In this example the contributor, whilst having
paid all of the NICs that he is due to pay, does not exceed his
maximum. The contributor is liable to pay Class 4 NICs at a rate of
8% only. This example should be read in conjunction with
NIM24175 and
NIM24176
The example uses the rates and limits in force during the
2003/2004 tax year.
Details
Mr Ash has been self-employed for the whole of the 2003/2004
tax year. His profits for the year amount to £10,000. He has
paid £430.80 at the main Class 4 NICs percentage. He has paid
53 Class 2 NICs at £2.00. Mr Ash also had two part time
employed earner's employments during the 2003/2004 tax year. In the
two employments he paid a total of £500 at the main Class 1
NICs percentage. Mr Ash's maximum Class 1, 2 and 4 NICs liability
is calculated as follows.
Maximum calculation
Step 1
Subtract the Lower Profits Limit (LPL) from the Upper Profits
Limit (UPL)
£30940 - £4615 = £26325
Step 2
Multiply the result of step 1 by 8%
£26325 x 8% = £2106
Step 3
Add to the result of step 2, 53 times the weekly rate of
Class 2 NICs
£2106 + (53 x £2.00) = £2212
Step 4
Subtract from the result of step 3 the aggregate amount of
any Class 2 NICs and any primary Class 1 NICs paid at the main
primary percentage.
£2212 - £606 = £1606
Which Case of regulation 100(3) does Mr Ash fall
into?
If the result of step 4 is a positive figure and it exceeds
the aggregate of Class 1 NICs payable at the main primary
percentage, Class 2 NICs and Class 4 NICs payable at the main Class
4 NICs percentage on the earnings and profits received for the
year, the result of step 4 is the maximum amount of Class 4 NICs
due. There is no need to proceed to any further steps within
regulation 100(3).
On his earnings and profits Mr Ash would be liable, and has
paid, a total of £1036.80 in NICs. That is £500 in Class
1 NICs, plus £106 in Class 2 NICs plus £430.80 in Class 4
NICs. The figure produced by step 4 (£1606) is a positive
figure and it exceeds £1036.80. Mr Ash therefore falls into
Case 1 of regulation 100(3). Case 1 provides that the figure of
Class 4 produced at step 4 is the maximum amount of Class 4 NICs
payable.
Although the maximum amount of Class 4 payable by Mr Ash is
£1606, he is only liable to pay £438.80 in Class 4 NICs
because his profits are only £10,000. In this example, the
contributor has paid all of the NICs that he is liable to pay but
he has not reached his maximum. There is no question of Mr Ash
being required to pay any further Class 4 NICs.
