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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 4 NICs: structure from 6 April 2003: calculation of Class 4 NICs from 6 April 2003: examples

The following examples illustrate how liability for Class 4 NICs is calculated following the introduction of a Class 4 NICs liability on all profits or gains above the Upper Profits Limit (UPL).

The examples use the Class 4 NICs rates and limits in force during the 2012/2013 tax year.

The Upper Profits Limit (UPL) is £42475 and the Lower Profits Limit (LPL) is £7605

Example 1 - profits do not exceed the UPL

Ms A Adams has been self-employed for the whole of the 2012/2013 tax year. Her total profits from her self-employment for the year are £40,000. The amount of Class 4 NICs due is calculated as follows:

Profits between the LPL and UPL = £40,000 (actual profits) - £7605 = £32395

Profits in excess of the UPL = Nil

Class 4 NICs due at:

* the main Class 4 NICs percentage = £32395 x 9% = £2915.55
* the additional Class 4 NICs percentage = Nil

Total Class 4 NICs due = £2915.55

In addition to her Class 4 NICs liability Ms Adams will also be liable to pay Class 2 NICs.

Example 2 - profits exceed the UPL

Mr B Brownlee has been self-employed for the whole of the 2012/2013 tax year. His total profits from his self-employment for the year are £80,000. The amount of Class 4 NICs due is calculated as follows:

Profits between the LPL and UPL = £42475 - £7605 = £34870

Profits in excess of the UPL = £80,000 - £42475 = £37525

Class 4 NICs due at:

* the main Class 4 NICs percentage = £34780 x 9% = £3138.30 
* the additional Class 4 NICs percentage = £37525 x 2% = £750.50

Total Class 4 NICs due = £3138.30 + £750.50 = £3888.80

In addition to his Class 4 NICs liability Mr Brownlee will also be liable to pay Class 2 NICs.