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HMRC internal manual

National Insurance Manual

Class 1 structural overview from 6 April 2003 to 5 April 2009: changes to the deferment process from 6 April 2003

NIPG900000 gives a detailed explanation of the deferment process and the impact of all structural changes..

Briefly, an earner could apply to defer paying all primary Class 1 contributions in certain employments for any tax year except the year in which they reach state pension age if they:

  • had more than one employment and
  • expected to pay enough Class 1 NICs in one, or more than one, employment to reach the prescribed Class 1 and 2 annual maximum.

Although the general rule is that deferment is not granted in the year in which a contributor reaches state pension age, exceptions could be made where the contributor could demonstrate that before they reach state pension age they will have reached the prescribed maximum.

For all tax years before the 2003/2004 tax year, each contributor with more than one employment was prescribed the same annual maximum, see NIM01009.

The Class 1 deferment process is an administrative device which prevents the employee paying NICs in excess of the annual maximum which subsequently need to be refunded.

The changes to the annual maximum calculation described at NIM01159 onwards for tax years 2003/2004 onwards now require an employee, who has earnings in excess of 53 x (the UEL - PT), to pay primary Class 1 NICs on all of their remaining earnings which, when received, exceed the PT.

Although this new maximum liability means that all earnings in excess of the PT will attract a Class 1 liability, deferment will remain available to employees who anticipate earning in excess of 53 x the UEL in one or more employments. Continuing to grant deferment will prevent excess refunds occurring.

For the 2003/2004 tax year, an employee who is granted deferment will be required to pay:

  • Class 1 NICs at the relevant percentage rates on all earnings above the Primary Threshold in the non deferred employments
  • Class 1 NICs at a rate of 1% on all earnings above the Primary Threshold in any deferred employment.

Deferment Services at NIC&EO will continue to deal with all deferment applications. At the end of the year Deferment Services will review each deferment case and arrange to collect any underpayments or refer the case to Payment Reconciliation who will arrange to refund any overpayment where necessary.

Employers whose employees are granted deferment will be advised to deduct Class 1 primary NICs at a rate of 1% on all earnings above the Primary Threshold and will be required to report the payments on forms P14 and P35.

Any underpayment of the 1% in non-deferred employments will remain the responsibility of the employer. Any underpayment arising because the anticipated earnings in the non deferred employments did not materialise will remain the responsibility of the employee.