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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 from April 2009: earnings limits, thresholds & NIC rebate: from 6 April 2009

Earnings limits/thresholds

From 6 April 2009 there is still a Lower Earnings Limit (LEL), see NIM01005, and Primary and Secondary Thresholds, see NIM01008. No contributions are paid on earnings between the LEL and the thresholds, with NICs becoming payable only when earnings exceed the thresholds. However, primary contributions, see NIM01001, are treated as having been paid on earnings at the LEL, see NIM01005, up to and including the Primary Threshold (see also NIM01007 covering ‘Notional Primary’).

There is also an Upper Accrual Point (UAP), see NIM01205. This is the maximum amount of earnings on which an earner who is contracted out of the state pension scheme can receive a NICs rebate.

There is also an Upper Earnings Limit (UEL). This is the maximum amount of earnings on which an earner pays NICs at the main Class 1 primary percentage.

For Guidance on the structure of Class 1 NICs up to 6 April 2003, see NIM01000.

For guidance on the structure of Class 1 NICs from 6 April 2003 up to 6 April 2009, see NIM01100.

For further guidance on calculating and recording NICs, including NIC rates, see NIM11000 onwards. If aggregation of earnings is involved see NIM01004, see also NIM10000 onwards.

NIC rebate

Where employers operate contracted-out pension schemes they and their employees who are members of the schemes receive a reduction in their NICs. The reduction, for both employees and employers, is in effect realised via a reduction in the NICs percentage rate applied to earnings between the LEL and the UAP. The percentage rate differs for employees and employers. The difference between the full contracted-out rate and these reduced rates is known as the contracted-out rebate’.

From 6 April 2012 the NIC rebate for employees was reduced from 1.6% to 1.4% and for employers from 3.7% to 3.4%

For further information about contracting-out, see NIM01017. For further guidance on calculating and recording the contracted-out rebate, including rebated rates, see NIM11000 onwards. If aggregation of earnings is involved (NIM01004), see also NIM10000 onwards.