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HMRC internal manual

National Insurance Manual

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Class 1 structural overview from 6 April 2003 to 5 April 2009 : structural changes: the Class 1 and 2 annual maximum: general

Regulation 21, SS(C)R 2001

Guidance on the annual maximum for all tax years up to and including the 2002/2003 tax year is provided at NIM37010. The following guidance relates solely to tax years beginning 2003/2004 onwards.

NIM01105 explains the structural changes to primary Class 1 from 6April 2003, including the introduction, for the first time, of an uncapped primary Class 1 NICs liability on all earnings in excess of the Upper Earnings Limit.

Despite the legislative changes that are effective from 6 April 2003 the concept of an annual maximum for earners with more than one employment in a tax year is retained. There continues, however, to be no prescribed annual maximum for contributors who have a single employment during the tax year. The maximum liability for earners who have a single employed earner’s employment will depend upon the level of their earnings and the number of earnings periods in which those earnings are paid.

The introduction of an uncapped primary liability means that whilst a prescribed maximum is retained there can no longer be a universal Class 1 and 2 NICs maximum figure applicable to all contributors who have more than one employment in a tax year.

Instead, from the 2003/2004 tax year onwards, each contributor will have an individualised Class 1 and 2 maximum. That maximum will depend upon:

  • whether the person is employed and self employed
  • the number of employed earner’s employments held during the tax year
  • the level of earnings received in each of those employed earner’s employments
  • the amount of earnings received in each earnings period.

To effect this change regulation 21 was substituted by regulation 6 of the Social Security (Contributions) (Amendment) Regulations 2003 (Statutory Instrument number 2003/193).

Since each contributor who has more than one employed earner’s employment, or who is both employed and self employed, has an individualised maximum, the legislation does not provide a maximum figure. Rather, it provides a calculation method for determining the amount of an individual’s maximum.

Further guidance on the purpose of a maximum and the need to retain it following the introduction of a primary liability on earnings in excess of the UEL is provided at NIM01161 and NIM01162.

The actual calculation is provided at NIM01163.