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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: Examples: General

NIM01172 to NIM01178 provide examples of calculating theClass 1 and 2 annual maximum for various earners with differing employment patterns. Theexamples are for illustrative purposes only as each contributor with more than oneemployment will have an individual maximum based on the number of employments held and thelevel of earnings received in their Class 1 employments. The following notes should beread in conjunction with each example:

Example 1: Two Class 1 employments - earnings of £72,000

NIM01172 provides a straightforward example of a monthly paid employee with twoseparate employments who is employed throughout the 2003/2004 tax year. The total earningsare £72,000. The employee is subject to a maximum that equals 11% of earnings equivalentto 53 x the UEL less the PT, plus 1% on all remaining earnings which, when paid were abovethe monthly Primary Threshold. The employee has earnings which are consistently above themonthly UEL.

Example 2: Three Class 1 employments - earnings of £72,000 (static earnings)

NIM01173 provides the same earnings as in NIM01172 but spread evenly over threeemployments. Again the employee is employed throughout the whole of the 2003/2004 tax yearand is paid monthly in each employment. The employee is subject to a maximum that equals11% of earnings equivalent to 53 x the UEL less the PT, plus 1% on all remaining earningswhich, when paid were above the monthly Primary Threshold. The employee has no earningsabove the monthly UEL.

Example 3: Three Class 1 employments - earnings of £72,000 (fluctuating earnings)

NIM01174 provides the same earnings as in NIM01172 spread over three employmentsbut which fluctuate. The employee also commences one employment during the 2003/2004 taxyear. The employee is subject to a maximum that requires 11% on earnings equivalent to 53x the UEL less the PT, plus 1% on all remaining earnings which, when paid were above themonthly Primary Threshold. In some earnings periods the employee earns below the PT and inothers above the UEL.

Example 4: Two Class 1 employments and also self-employment - Class 1 earnings abovethe UEL. Employee not required to pay Class 2

NIM01175 provides a straightforward example of a monthly paid employee with twoemployed earner’s employment who is also self-employed. The employee earns £48,000evenly throughout the 2003/2004 tax year. The employee is subject to a maximum thatrequires 11% on earnings equivalent to 53 x the UEL less the PT, plus 1% on all remainingearnings which, when paid were above the monthly Primary Threshold. The employee reacheshis maximum by the payment of Class 1 contributions and no Class 2 contributions are due

Example 5: One Class 1 employment and also self-employment - Class 1 earnings abovethe UEL. Employee required to pay Class 2

NIM01176 provides an example of a monthly paid employee with one Class 1 employmentwho is also self-employed and who earns the same as the employee in NIM01175. The employeeis subject to a maximum that requires 11% on earnings equivalent to 53 x the UEL - lessthe PT, plus 1% on all remaining earnings which, when paid were above the monthly PrimaryThreshold. The employee does not exceed his maximum by the payment of Class 1 NICs and istherefore required to pay Class 2 NICs.

Example 6: Four Class 1 employments – maximum not reached

NIM01177 provides an example of a maximum calculation involving a person who hasearnings from four employments. The employee earns £150 a week in each employment. Theemployee is subject to a maximum that requires 11% on earnings equivalent to 53 x the UELonly.

Example 7: Director with three directorships

NIM01178 provides an example of a maximum calculation for adirector who has 3 directorships. In each he receives no regular payments but in each hereceives an annual bonus of £100,000. The director is subject to a maximum that requires11% on earnings equivalent to 53 x the UEL less the PT, plus 1% on all remaining earningswhich, when paid were above the Primary Threshold.