NIM01102 - Class 1 structural overview from 6 April 2003 to 5 April 2009: background
National Insurance Contibutions Act 2002 (NICA 2002)
NICA 2002, with effect from 6 April 2003, introduced a new primary Class 1 NICs liability on all earnings exceeding the Upper Earnings Limit. The new liability was set at 1%.
In addition, the Act also introduced a
- 1% increase in the existing rate of primary Class 1 NICs on earnings above the Primary Threshold up to and including the Upper Earnings Limit and a
- 1% increase in the rate of secondary Class 1 NICs on all earnings above the Secondary Threshold.
No changes were made to the underlying principles of Class 1 NICs liability.
One of the main considerations in introducing a primary Class 1 liability on earnings above the Upper Earnings Limit was to ensure that as little disruption as possible was made to the way in which Class 1 NICs continued to be reported and paid by employers.
To minimise administrative burdens, employers were not required to record separately on End of Year returns the additional 1% primary liability due on earnings in excess of the Upper Earning Limit. Employers continued to deduct and report the total amount of primary Class 1 NICs due as a single figure.
Neither were employers required to report earnings above the Upper Earnings Limit for NICs purposes on End of Year returns. The new primary liability was reported as part of the total primary contribution payable.
Equally, to ensure the changes had no impact on benefit entitlement, the Upper Earnings Limit remained in place for the purposes of calculating contributory benefits. Earnings above the Upper Earnings Limit on which the new primary liability exists are excluded from the calculation of earnings factors. See NIM01150 for more information.
Although the impact of the changes had been kept to a minimum, the introduction of a primary liability on earnings above the Upper Earnings Limit has had consequential effects on certain Class 1 issues. The main areas affected were: