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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 maximum: Examples: One Class 1 employment and self-employment: Class 2 due

Example 5

G Gray is both employed and self-employed. His total earnings for the 2003/2004 fromhis Class 1 employment are £48,000. He is paid £2500 per month and receives a £9000bonus in June and December. His maximum Class 1and 2 liability is calculated as follows:

Step 1

Deduct the relevant Primary threshold from the relevant UEL and multiply that figure by53.

595 - 89 = 506 x 53 = 26818

Step 2

Multiply the result of step 1 by 11 per cent

26818 x 11% = 2949.98

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.

2500 (monthly earnings) - 385 (monthly PT) = 2115 x 10 = 21150

2579 (monthly UEL) - 385 (monthly PT) = 2194 x 2 (June + Dec) = 4388

Total 21150 + 4388 = £25538

Step 4

Deduct from the total found at step 3 step the amount produced by step 1

25538 - 26818 = minus 1280

Step 5

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

If the figure produced at step 4 is a negative figure, it is treated for thepurposes of step 8 as nil

Nil

Step 6

Add together so much of the person’s earnings from each employment as exceeded theUpper Earnings Limit.

11500 (monthly earnings Jun + Dec) - 2579 x 2 (monthly UEL) = 17842

Step 7

Multiply the result of step 6 by 1%

17842 x 1% = £178.42

Step 8

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

£2949.98 + nil + 178.42 = £3128.40

G Gray’s maximum for the 2003/2004 tax year is £3128.40

Since the employee will not have met his maximum by payment of Class 1 NICs, payment ofClass 2 NICs is required.

The reason why the employee has not met his maximum is that in ten of the twelve monthshis earnings did not reach the monthly UEL. The employee will not have paid main rateClass 1 contributions at 11% on earnings amounting to 53 x the UEL less the PT and someClass 2 NICS will be due.