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HMRC internal manual

National Insurance Manual

Class 1 structural overview - from April 2009: 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 tax year, was employed in more than one employment will have an individualised maximum liability for either Class 1 contributions or Class 1 and Class 2 contributions.

NIM01162 explains the purpose of retaining a maximum. From 6 April 2011 although there are no structural changes to the annual maximum the rates of NICs for the main primary percentage, the additional primary percentage and the NIC rebate changed.

To determine a person’s maximum contribution liability for the 2012/2013 tax year, the following calculation is used:

Step 1

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

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

Step 2

Multiply the result of step 1 by 12%

Step 3

Add together so much of the person’s earnings from each employed earner’s employment 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 2%.

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

Step 6

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

Step 7

Multiply the result of step 6 by 2%

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 that an earner can pay in respect of the 2012/2013 tax year.

The exception to this is where the earner is either:

  • in contracted-out employment, see NIM01252, or
  • a married woman/widow paying reduced rate NICs, see NIM01253 

Examples of the maximum calculations can be found at NIM01271 onwards.

Despite the retention of an annual maximum for earners with more than one employment in a tax year there is no prescribed annual maximum for contributors who have a single employment during the tax year.

The maximum liability for earners who have a single employed earner’s employment will depend upon the level of their earnings and the number of earnings periods in which those earnings are paid.