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HMRC internal manual

# Class 4 NICs: Structure: Annual Class 4 NICs maximum pre 6 April 2003: Contributors who are self-employed only: Example: Self- employed for part of the tax year only

NIM24105 provides guidance on the calculation method used to determine the maximumamount of Class 2 and 4 NICs liability payable by a contributor who is self-employed only.

The following example illustrates that calculation for a contributor whose profits for thetax year do not exceed the Upper Profits Limit (UPL) and who was self-employed for onlypart of the 2002/2003 tax year.

The calculation method shown applies only to tax years up to and including the 2002/2003tax year. For guidance on the maximum amount of Class 2 and 4 NICs payable by suchcontributors for tax years from 2003/2004 see NIM24152.

The example uses the rates and limits in force during the 2002/2003 tax year.

Mr Peters has been self-employed for 48 weeks during the 2002/2003 tax year. His profitsfor the year amount to £40,000. Mr Peters held no other employments during the year.Prior to commencing his self-employment Mr Peters was unemployed.

Step 1

Multiply by the appropriate Class 4 NICs percentage, the amount of profits between theLower Profits Limit (LPL) and the UPL.

£30,420 (UPL) - £4615 (LPL) = £25805 x 7% (Class 4 percentage rate) = £1806.35

Step 2

Multiply the relevant Class 2 NICs rate by the number of weeks of self-employement in thetax year

£2.00 x 48 = £96.00

Step 3

Add together the results of steps 1 and 2

£1806.35. + £96.00 = £1902.35

Mr Peters is liable to pay a total of £1902.35 in Class 2 and 4 NICs for the 2002/2003tax year.

NB: Although Mr Peters was only self-employed for 48 weeks during the 2002/2003 tax yearand his Class 2 liability is adjusted, he is still required to pay Class 4 NICs on all ofhis profits up to the UPL. He pays no Class 4 NICs on profits which exceed the UPL.