NIM10020 - Aggregation of Earnings: Calculation & recording: NICs due at contracted-out & not contracted-out rate: No Appropriate Personal Pension (APP): Contracted-out earnings reach or exceed UEL: Tax years 1998/1999 & earlier

All examples on this page use the 1998-99 rates and earnings bands. NICs are worked out using the exact percentage method and are based on the employee being a member of a Contracted-Out Salary Related (COSR) scheme.

When calculating NICs, priority is given to the contracted-out earnings. NICs are worked out on the total earnings using the shortest earnings period of the contracted-out employment(s).

Employee’s NICs are worked out at the:

initial percentage rate on earnings up to and including the LEL, and
main contracted-out percentage rate on earnings above the LEL up to and including the UEL

Employer’s NICs are worked out at the:

highest not contracted-out percentage rate on earnings up to and including the LEL
highest contracted-out percentage rate on earnings up to and including the UEL, and
highest not contracted-out rate on the balance of the total earnings.

EXAMPLE

S. Davies earns £2,220 per month from his contracted-out job and £200 per month from his not contracted-out job. The total earnings are £2,420 per month and the earnings period is monthly.

Employee’s NICs due: £158.78 (Table letter D)

Employer’s NICs due : £187.28 (Table letter D)

Recording the NICs due on form P11

Form P11 only shows NICs paid on earnings between the LEL and the UEL. The NICs are only recorded on one form P11 under contribution Table letter D. The end of year totals will be recorded on one form P14, also under contribution Table letter D. The entries on the P11 will be as follows:-

National Insurance contributions
Earnings on which employee’s contributions payable	Total of employee’s and employer’s contributions payable	Employee’s contributions payable	Earnings on which employee’s contributions at contracted-out rate payable included in 1a	Employee’s contributions at contracted-out rate included in 1c
Whole pounds only			Whole pounds only
1a	1b	1c	1d	1e
2,102	346.06	158.78	1,824	153.22

Recording the end of year totals on form P14

(The entries below assume the level of earnings remained unchanged throughout the year)

National Insurance contributions in this employment
Contri- bution Table letter	Earnings on which employee’s contributions payable	Total of Employee’s and Employer’s contributions payable	Employee’s contributions payable	Earnings on which employee’s contributions at Contracted-out rate payable included in 1a	Employee’s contributions at Contracted-out rate included in 1c
	Whole £s only			Whole £s only
	1a	1b	1c	1d	1e
D	25,224	4,152.72	1,905.36	21,888	1,838.64

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