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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
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Aggregation of Earnings: 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

Paragraph 1(2) of Schedule 1 to the Social Security Contributions and Benefits Act 1992 provides 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.

Although the National Insurance Scheme has undergone much re-structuring since April 1999, 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 set out, on a year-by-year basis, how NICs in such circumstances are calculated and recorded on the Deductions Working Sheet P11, and End of Year Summary P14 for tax years:

  • 1998 to 1999 and earlier
  • 1999 to 2000
  • 2000 to 2001, and
  • 2001 to 2002.

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) (and from 2001 to 2002 an APP Stakeholder Pension (APPSHP))
  • then on earnings on which NICs are payable under the letter F (or G) if the employee belongs to the company’s Contracted-out Money Purchase (COMP) scheme (and from 2001 to 2002, where a COMP Stakeholder Pension (COMPSHP) scheme is involved)
  • 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).