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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/threshold and NICs rebate: 1999 to 2000 tax year

Earnings limits/threshold

April 1999 saw the abolition of NICs for employees on earnings up to and including the Lower Earnings Limit (‘LEL’, see NIM01005), the abolition of NICs for employers up to and including a new Secondary Threshold (‘ST’, see NIM01008, also known as the‘Employer’s Earnings Threshold’ or ‘ER/ET’), and the introduction of one single rate for employers, to replace the four separate ones previously in operation (see NIM01006 covering Earnings Brackets). 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.