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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): primary class 1 NICs: background: general

Class 1 NICs are earnings-related and comprise of two elements:

  • the primary Class 1 contribution payable by employed earners
  • the secondary Class 1 contribution payable by employers and other persons paying earnings.

Liability to pay Class 1 contributions is limited to persons who fulfil prescribed conditions of residence within the UK and no person is entitled to pay Class 1 contributions other than those for which they are liable. Liability arises at the time the earnings are placed unconditionally at the employee’s disposal.

A Class 1 contribution is payable, or treated as paid, in respect of earnings from an employed earner’s employment or by those whose employment is treated by regulations as such, except where the earner

  • is under the age of 16 at the time payment is made
  • has earnings less than the Lower Earnings Level (LEL) current at that time
  • is at or over State pension age at the time payment is made.

The LEL is the point at which entitlement to contributory benefits commences but normally there is no payment of Class 1 NICs on earnings between the LEL and the Earnings Thresholds.

The Earnings Threshold for employees is known as the Primary Threshold (PT) or Employee’s Earning Threshold (EE/ET) whereas that for employers is the Secondary Threshold (ST) or Employer’s Earnings Threshold (ER/ET).  

These thresholds represent the points from which payment of NICs arises.

Further guidance on NIC thresholds and limits can be found at NIM11000. 

The employer is liable to pay their own and their employee’s contributions and may recover the amount of the primary contributions from the employees’ earnings. An employee will however become liable to pay their own contributions where

  • they have deferred part of their primary Class 1 liability to avoid paying more than the prescribed maximum and their earnings did not actually reach the maximum
  • the contribution was not paid owing to an act or default of the employee and there was no negligence by the employer.