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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 structural overview: earnings limits/thresholds and NICs rebate: 2001 to 2002 tax year onwards

Earnings limits/thresholds

For 2001 to 2002 tax year onwards, there is a Lower Earnings Limit (‘LEL’, see NIM01005) and a Primary and a Secondary Thresholds (see NIM01008). No contributions are paid on earnings between the LEL and the thresholds, with NICs becoming payable only when earnings exceed the thresholds. However, primary contributions (see NIM01001) are treated as having been paid on earnings at the LEL (see NIM01005) up to and including the Primary Threshold (see also NIM01007 covering ‘Notional Primary’).

There is also an Upper Earnings Limit (‘UEL’). Until 5 April 2003, the UEL was the maximum amount of earnings upon which primary Class 1 NICs are payable (see NIM01009).

For guidance on the structure of primary Class 1 NICs from 6 April 2003, see NIM01100.

For guidance on the structure of primary Class 1 NICs from 6 April 2009, see NIM01200

For further guidance on calculating and recording NICs, including NICs rates, see NIM11000 onwards. If aggregation of earnings is involved (NIM01004), see also NIM10000 onwards.

NICs rebate

Where employers operate contracted-out pension schemes, they and their employees who are members of the schemes receive a reduction in their NICs. The reduction, for both employees and employers, is realised via a reduction in the NICs percentage rate applied to earnings between the LEL and the UEL. The percentage rate differs for employees and employers and for the different types of contracted-out schemes. The difference between the full contracted-out rate and these reduced rates is known as the ‘contracted-out rebate’.

For further information about contracting-out, see NIM01017. For further guidance on calculating and recording the contracted-out rebate, including rebated rates, see NIM11000 onwards. If aggregation of earnings is involved (see NIM01004), see also NIM10000 onwards.