NIM24170 et seq provides guidance on the
calculation method used to determine the Class 1, 2 and 4 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 annual maximum for tax years before
2003/2004 see
NIM24120 et seq.
The following example illustrates the Class 1, 2 and 4 NICs
annual maximum calculation for a contributor who falls into Case 2
of regulation 100(3). In this example the contributor's profits do
not exceed the Upper Profits Limit and he is not required to pay
any Class 4 NICs at the additional Class 4 NICs percentage.
However, since the amount of Class 1 and 2 NICs that the
contributor has paid does not exceed the Class 2 and main
percentage Class 4 NICs maximum, the contributor is required to pay
some Class 4 NICs at 8% and some Class 4 NICs at a rate of 1%. This
example should be read in conjunction with
NIM24175 and
NIM24177
The example uses the rates and limits in force during the
2003/2004 tax year.
Details
Mr Birch has been self-employed for the whole of the
2003/2004 tax year. His profits for the year are £25,000. He
has paid £1630.80 at the main Class 4 NICs percentage. He has
paid 53 Class 2 NICs at £2.00. Mr Birch was also employed
during the 2003/2004 tax year and has paid £1500 at the main
Class 1 NICs percentage. Mr Birch'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 - £1606 = £606
Which Case of regulation 100(3) does Mr Birch fall
into?
If the result of step 4 is a positive figure but it does not
exceed 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 percentage, the result of step 4 is the maximum amount of Class 4
NICs due at 8%.
On his earnings and profits Mr Birch would be liable, and has
paid, a total of £3236.80 in NICs. That is £1500 in Class
1 NICs, plus £106 in Class 2 NICs plus £1630.80 in Class
4 NICs. The figure produced by step 4 (£606) is a positive
figure but it does not exceed £3236.80. Mr Birch therefore
falls into Case 2 of regulation 100(3). Case 2 provides that the
figure of Class 4 produced at step 4 is the maximum amount of Class
4 NICs payable at 8%. It is then necessary to go to step 5 to 9 of
regulation 100(3).
Step 5
Multiply the result of step 4 by 100/8
606 x 100/8 = £7575
Step 6
Subtract the Lower Profits Limit from the lesser of the Upper
Profits Limit and the actual amount of profits for the year.
£25,000 - £4615 = £20385
Step 7
Subtract the result of step 5 from the result of step 6.
£20385 - £7575 = £12810
Step 8
Multiply the result of step 7 by 1%
£12810 x 1% = £128.10
Step 9
Multiply by 1% the amount of profits in excess of the Upper
Profits Limit
Nil x 1% - there are no profits above the UPL.
Step 10
Add together steps 4, 8 and 9
£606 + £128.10 + nil = £734.10
Mr Birch's annual Class 4 liability amounts to £734.10.
He is due to pay a combination of Class 4 NICs at 8% and 1%. As he
has no profits above the UPL he is not liable for Class 4 NICs at
the additional percentage. As he has paid less in Class 1, 2 and 4
NICs than the Class 2 and main percentage 4 maximum he is due to
pay 1% on some of the profits that fall between the LPL and UPL. As
a total of £1630.80 in Class 4 NICs has been paid Mr Birch is
due a Class 4 refund.
