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Case 2 of regulation 100(3) SS(C)R 2001

NIM24170 onwards 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 onwards.

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鈥檚 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 2010/2011 tax year.

Example

Mr Kenny has been self-employed for the whole of the 2010/2011 tax year. His profits for the year are 拢30,000. He has paid 拢1,942.80 at the main Class 4 NICs percentage. He has paid 52 Class 2 NICs at 拢2.40. Mr Kenny was also employed during the 2010/2011 tax year and has paid 拢2,500 at the main Class 1 NICs percentage. Mr Kenny鈥檚 maximum Class 1, 2 and 4 NICs liability is calculated as follows.

Step 1

Subtract the Lower Profits Limit (LPL) from the Upper Profits Limit (UPL)

拢43,875 - 拢5,715 = 拢38,160

Step 2

Multiply the result of step 1 by 8%

拢38,160 x 8% = 拢3,052.80

Step 3

Add to the result of step 2, 53 times the weekly rate of Class 2 NICs

拢3,052.80 + (53 x 拢2.40) = 拢3,180

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.

拢3,180 - 拢2,624.80 = 拢555.20

Which Case of regulation 100(3) does Mr Kenny 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 Kenny would be liable, and has paid, a total of 拢4,567.60 in NICs. That is 拢2,500 in Class 1 NICs, plus 拢124.80 in Class 2 NICs plus 拢1,942.80 in Class 4 NICs. The figure produced by step 4 (拢555.20) is a positive figure but it does not exceed 拢4,567.60. Mr Kenny 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

555.20 x 100/8 = 拢6,940

Step 6

Subtract the Lower Profits Limit from the lesser of the Upper Profits Limit and the actual amount of profits for the year.

拢30,000 - 拢5,715 = 拢24,285

Step 7

Subtract the result of step 5 from the result of step 6.

拢24,285 - 拢6,940 = 拢17,345

Step 8

Multiply the result of step 7 by 1%

拢17,345 x 1% = 拢173.45

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

拢555.20 + 拢173.45 + nil = 拢728.65

Mr Kenny鈥檚 annual Class 4 liability amounts to 拢728.65. 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 拢1,942.80 in Class 4 NICs has been paid Mr Kenny is due a Class 4 refund.