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HMRC internal manual

National Insurance Manual

Class 1 Structural Overview from 6 April 2003: Structural changes: The Class 1 and 2 annual maximum: Purpose of a maximum

NIM01163 provides details of the calculation method used todetermine an earner’s maximum liability for Class 1, or Class 1 and Class 2 NICs, fortax years 2003/2004 onwards.

Since the introduction of an uncapped primary Class 1 NICs liability on all earnings abovethe UEL means that the amount of Class 1 NICs due will depend upon the extent of aperson’s earnings, it is no longer possible to prescribe a universal maximumapplicable to all earners, irrespective of the level of their earnings.

Despite this, the structure of Class 1 NICs, as it applies to separate employments, meansthat some form of limit must remain.

This is because primary legislation dealing with Class 1 NICs provides:

  • for a Class 1 liability to arise where in any tax week earnings are paid to or for the benefit of an earner and
  • for that liability to arise without regard to any other payment of earnings in respect of any other employed earner’s employment.

As a result, the whole of the earnings-related side of the NI scheme is framed around aweekly paid earner with one employment, with provision made to prescribe weeklyequivalents. The principal charging sections within the primary legislation do notthemselves recognise the holding of more than one employment.

Since the primary legislation imposes a full liability in respect of each employment held,the absence of a limiting factor which can look across the employments would mean aprimary contributor:

  • paying Class 1 NICs in each employed earner’s employment held and
  • paying those Class 1 NICs on each pound of earnings above the Primary Threshold in each employment.

The annual maximum prescribed by regulation 21 is the device that limits the amount ofClass 1 and 2 NICs payable by these earners.