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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 - post April 2003: Structural changes: The Class 1 and 2 annual maximum: The calculation method

Regulation 21(3), SS(C)R 2001

NIM01160 explains that from 6 April 2003 each contributor who, in the relevant taxyear, was employed in more than one employment will have an individualised maximumliability for either Class 1 contributions or Class 1 and Class 2 contributions.

To determine a person’s maximum contribution liability for the 2003/2004 tax year,the following calculation is used:

Step 1

Deduct the relevant Primary Threshold from the relevant Upper Earnings Limit and multiplythat figure by 53.

(Here ‘relevant’ means the Primary Threshold and Upper Earnings Limit in forceduring the year for which the maximum is being calculated.)

Step 2

Multiply the result of step 1 by 11%

Step 3

Add together so much of the person’s earnings from each employed earner’semployment as exceeded the Primary Threshold but did not exceed the Upper Earnings Limit.

Step 4

Deduct from the total found at step 3 the amount found at step 1.

Step 5

If the figure produced at step 4 is a positive figure multiply that figure by 1%.

If the figure produced by step 4 is a negative figure, it is treated for the purposes ofstep 8 as nil

Step 6

Add together so much of the person’s earnings from each employed earner’semployment as exceeded the Upper Earnings Limit.

Step 7

Multiply the result of step 6 by 1%

Step 8

Add together the results of steps 2, 5 and 7.

The result of step 8 is the maximum amount of Class 1 or Class 1 and 2 contributions thatan earner can pay in respect of the 2003/2004 tax year.

The exception to this is where the earner is either in:

  • contracted-out employment, see NIM01164, or
  • a married woman/widow paying reduced rate NICs, see NIM01165

Examples of the maximum calculations can be found at NIM01171 onwards.