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HMRC internal manual

National Insurance Manual

Calculating and recording NICs in mixed contracted-out, not contracted-out and Appropriate Personal Pension (APP) cases: general

Paragraph 1(2) of Schedule 1, SSCBA 1992

Before 6 April 2016

Paragraph 1(2) of schedule 1 to the Social Security Contributions and Benefits Act 1992 provided for the priority to be given to NICs in the event that a person has a mixture of contracted-out and not contracted-out employments in which the earnings fall to be aggregated. When a mixture of contracted-out and not contracted-out employments are involved, NICs must be calculated using the exact percentage method. This is because earnings below the LEL can only be disregarded once.

The general principles for calculating and recording NICs where a mixture of contracted-out and not contracted-out employments are involved has remained unchanged since the introduction of earnings-related contributions in 1975.

To simplify matters, the subsequent NIM pages (NIM10060 to NIM10068) set out how NICs in such circumstances are calculated and recorded on Real Time Information (RTI) for tax years:

  • 2015 to 2016 and earlier
  • 2016 to 2017 onwards.

The order in which to calculate NICs is:

  • first on earnings on which NICs are payable under Table letter A if the employee has an Appropriate Personal Pension (APP) or an APP Stakeholder Pension (APPSHP)
  • then on earnings on which NICs are payable under the letter D (or E) if the employee belongs to the company’s Contracted-out Salary Related (COSR) scheme
  • finally on earnings on which NICs are payable under Table letter A if the employee does not have an APP or an APPSHP or B if the employee is a married woman with a reduced rate election in a not contracted-out employment (a married woman with a reduced rate election cannot join an APP or APPSHP).

From 6 April 2016

Paragraph 1(2) of schedule 1 to the Social Security Contributions and Benefits Act 1992 was repealed by Pensions Act 2014 from 6 April 2016 to remove reference to contracted-out employments.

As only not contracted-out employments can now be held, the rules for determining the correct earnings period where the earner has a mixture of employments has been simplified.

There is no order in which to calculate NICs.