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HMRC internal manual

National Insurance Manual

Class 1: calculating & recording earnings, NICs & NIC rebates: general

Regulation 12(5), SS(C)R 2001

Para 6(1), SS(C)R 2001 Schedule 4

An employer must prepare and maintain a deduction working sheet (or equivalent) when he makes a payment:

  • on which NICs are payable
  • on which NICs are treated as paid
  • of statutory payments.

An employer can calculate Class 1 National Insurance contributions (NICs) by:

  • applying the exact NICs percentage rates currently in force to the gross earnings. This is called the exact percentage method; or
  • using the official NI Tables.

Regulation 12(5) of the Social Security (Contributions) Regulations 2001 provides that employers must only use one method for each employee in any one tax year. However, the Department accepts that there are occasions when an employer can make a ‘once and for all’ switch in a particular tax year from one method of calculation to the other. Employers can do this without the Department’s prior agreement, if:

  • an employee changes to another payroll which already uses the other method; or
  • the employer changes their payroll system, for example from manual to computer.