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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 NICs: Payments made under employment legislation: Re-allocating primary NICs paid on a payment made under a reinstatement order, a re-engagement order, an order for the continuation of a contract of employment or a protective award:

How to apportion the amount of NICs paid between tax years: Example

Employer Z makes a payment under a re-engagement order – see NIM07030 – NIM07031 – to anemployee on 31 July 2001. The gross amount of the payment is £2,000 and is in respect ofthe period 7 March 2001 to 31 May 2001, which is 86 days.

The employee’s earnings in the 2000/01 tax year were slightly insufficient to makethe year qualifying for benefit/pension purposes. They have worked out that they can makethe 2000/01 tax year a qualifying one if the NICs they paid in the 2001/02 tax year on there-engagement order payment are re-allocated to the 2000/01 tax year. So they write to theDepartment and ask for this to be done.

Employer’s calculation of earnings limits and amount of primary NICs due

Using the guidance in middle row of the table on page 10 in the 2001 edition of leafletCWG2 “Employer’s Further Guide PAYE and NICs”, employer Z has calculated:

  • the lower earnings limit (LEL); and
  • the earnings threshold (ET); and
  • the amount of primary NICs due on the payment

as follows:

### Item ### Calculation ### Result
     
### LEL £72 (normal weekly LEL) ( 7 x 86 £884.57
### ET £4,535 (normal annual PT) ( 365 x 86 £1,069 (rounded up to nearest whole pound)
### Primary NICs due £2,000 - £1,069 = £931 x 10% (employee’s not contracted-out NIC rate) £93.10

Calculation of the amount of primary NICs to be re-allocated

### Item ### Calculation ### Result
     
The number of days in the earnings period that falls in the 2001/02 tax year 6 April 2001 to 31 May 2001 56 days
The amount of the gross payment that falls in the 2001/02 tax year £2,000 x 56 ( 86 £1,302.33
The amount of primary NICs payable on £1,302.33 £93.10 x 56 ( 86 £60.62
The number of days in the earnings period that falls in the 2000/01 tax year 7 March 2001 to 5 April 2001) 30 days
The amount of the gross payment that falls to be re-allocated to the 2000/01 tax year £2,000 - £1,302.33 £697.67 This is the amount of earnings to be re-allocated to the 2000/01 tax year.
The amount of primary NICs payable on £697.67 £93.10 - £60.62 £32.48 This is the amount of primary NICs to be re-allocated to the 2000/01 tax year.