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HMRC internal manual

Employment Status Manual

HM Revenue & Customs
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Application of the NICs rules: annual earnings period - example

This example illustrates how to work out how much NICs has to be paid over at the end of the year in respect of the deemed payment where a company is involved and a salary has been paid during the year.

Mr F works through his service company, F Services Ltd. The company has relevant engagements during the year ended 5 April 2001. A deemed payment of £10334 is treated as paid at the end of the year. Mr F also received a salary of £20,000 during the year. His total earnings in the year are therefore £30,334

The employer’s NICs on the deemed payment is £1,261 and on the salary is £1,905.

Employment Income tax and Class 1 NICs are due on the total amount of earnings paid in the year and on the deemed payment.

The Class 1 NICs that are payable are as follows:

Employer’s Class I NICs

Total earnings in year 30334
Employer’s NICs on total earnings* 3166
Employer’s NICs already paid in year on salary 1905
Additional employer’s NICs payable on deemed payment 1261

*this is calculated by:

subtracting the Employer’s Earnings Threshold (£4,385) from the total earnings (£30,334) in the year; and

then multiplying the resulting amount (£25,949) by the employer’s NIC percentage rate for the period (in this case 12.2%).

Employee’s Class 1 NICs

Employee’s NICs due+ 2343
Employee’s NICs already paid in year on salary 1605
Additional employee’s NICs payable 738

+this is calculated by:

subtracting the Employee’s Earnings Threshold (£4,385) from the Upper Earnings Threshold (or total earnings if lower) (£27,820); and

multiplying the resulting amount (£23,435) by the appropriate employee’s NICs percentage rate (in this case 10%).