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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Aggregation of Earnings: Calculation and recording: NICs due at contracted-out and not Contracted-out rate: No Appropriate Personal Pension (APP): Contracted-out earnings reach or exceed LEL but do not reach UEL: Tax years 1998 to 1999 and earlie

All examples on this page use the 1998-99 rates and earnings bands. NICs are worked out using the exact percentage method and are based on the employee being a member of a Contracted-Out Salary Related (COSR) scheme.

When calculating NICs, priority is given to the contracted-out earnings. NICs are worked out on the total earnings using the shortest earnings period of the contracted-out employment(s).

Employee’s NICs are worked out at the:

  • initial percentage rate on earnings up to and including the LEL
  • main contracted-out percentage rate on the balance of any contracted-out earnings
  • main not contracted-out percentage rate on not contracted-out earnings until the total earnings reach the UEL.

Employer’s contributions are worked out at the:

  • appropriate not contracted-out rate on earnings up to and including the LEL
  • appropriate contracted-out rate on the balance of any contracted-out earnings
  • appropriate not contracted-out rate on not contracted-out earnings.

Example

A Smith is paid monthly and receives £600 per month from his contracted-out job and £300 per month from his not contracted-out job. Total earnings are £900 per month and the earnings period is monthly.

Employee’s NICs due: £32.6 (Table letter D) + £30.00 (Table letter A)

Employer’s NICs due: £32.34 (Table letter D) + £21.00 (Table letter A)

Recording the NICs due on form P11

NICs will be recorded on two separate forms P11. One P11 should be completed for the contracted-out NICs and one for the not contracted-out NICs. Although two P11s should be kept, the end of year totals should be recorded on one P14, with a separate entry for both the contracted-out and not contracted-out NICs under their appropriate contribution Table letters. For contracted-out NICs, the entries on the P11 will be as follows:

National Insurance contributions

Earnings on which employee’s contributions payable Total of employee’s and employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at contracted-out rate payable included in 1a Employee’s contributions at contracted-out rate included in 1c
         
Whole pounds only     Whole pounds only  
1a 1b 1c 1d 1e
£600 £64.95 £32.61 £322 £27.05

For not contracted-out NICs, the entries on the P11 will be as follows:

National Insurance contributions

Earnings on which employee’s contributions payable Total of employee’s and employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at contracted-out rate payable included in 1a Employee’s contributions at contracted-out rate included in 1c
         
Whole pounds only     Whole pounds only  
1a 1b 1c 1d 1e
£300 £51.00 £30.00    

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Recording the end of year totals on form P14

The entries below assume the level of earnings remained unchanged throughout the year.

National Insurance contributions in this employment

Contribution Table letter Earnings on which employee’s contributions payable Total of Employee’s and Employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at Contracted-out rate payable included in 1a Employee’s contributions at Contracted-out rate included in 1c
           
  Whole pounds only     Whole pounds only  
  1a 1b 1c 1d 1e
D £7,200 £779.40 £391.32 £3,864 £324.60
A £3,600 £612.00 £360.00    

Example 

A Jones earns £900 a month in his contracted-out job, and £110 and £95 a week in each of his not contracted-out jobs. There are four weekly pay days in the month for both not contracted-out jobs. The earnings period is monthly. Monthly pay calculated as follows:

Contracted-out £900

plus

Not contracted-out

£110 x 4 = £440

£95 x 4 = £380

Total = £1,720

Employee’s NICs due: £57.81 (Table letter D) + £82.00 (Table letter A)

Employer’s NICs due: £71.34 (Table letter D) + £82.00 (Table letter A)

Recording the NICs due on form P11

Again, NICs will need to be recorded on two separate forms - P11 with the end of year totals recorded on one P14, with a separate entry for both the contracted-out and not contracted-out NICs under their appropriate contribution Table letters. For contracted-out NICs, the entries on the P11 will be as follows:

National Insurance contributions

Earnings on which employee’s contributions payable Total of employee’s and employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at contracted-out rate payable included in 1a Employee’s contributions at contracted-out rate included in 1c
         
Whole pounds only     Whole pounds only  
1a 1b 1c 1d 1e
£900 £129.15 £57.81 £622 £52.25

For not contracted-out NICs, the entries on the P11 will be as follows:

National Insurance contributions

Earnings on which employee’s contributions payable Total of employee’s and employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at contracted-out rate payable included in 1a Employee’s contributions at contracted-out rate included in 1c
         
Whole pounds only     Whole pounds only  
1a 1b 1c 1d 1e
£820 £164.00 £82.00    

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Recording the end of year totals on form P14

The entries below assume the level of earnings remained unchanged throughout the year.

National Insurance contributions in this employment

Contribution Table letter Earnings on which employee’s contributions payable Total of Employee’s and Employer’s contributions payable Employee’s contributions payable Earnings on which employee’s contributions at Contracted-out rate payable included in 1a Employee’s contributions at Contracted-out rate included in 1c
           
  Whole pounds only     Whole pounds only  
  1a 1b 1c 1d 1e
D £10,800 £1,549.80 £693.72 £7,464 £627.00
A £9,840 £1,968.00 £984.00