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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: 2000 to 2001 tax year

Earnings limits/thresholds

For the 2000 to 2001 tax year, there was a Lower Earnings Limit (‘LEL’, see NIM01005), a Primary Threshold (‘PT’, see NIM01008, sometimes known as the Employee’s Earnings Threshold or ‘EE/ET’), and a Secondary Threshold (‘ST’, see NIM01008, sometimes known as the Employer’s Earnings Threshold or ‘ER/ET’). No NICs were paid on earnings between the LEL and the Primary/Secondary Thresholds, with employees and employers only becoming liable to pay NICs once the employee’s earnings had exceeded their respective threshold limit (see also NIM01007 covering ‘Notional primary’). There was also an Upper Earnings Limit (‘UEL’) which was the maximum amount of earnings upon which primary Class 1 NICs were payable (see NIM01009). 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 this reduced rate is known as the ‘NICs rebate’.

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