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HMRC internal manual

National Insurance Manual

Class 4 NICs: Structure: Annual Class 4 NICs maximum pre 6 April 2003: Contributors who are employed and self-employed

Regulation 100, SS(C)R 2001

Guidance on the Class 4 NICs annual maximum for all tax years from 2003/2004 isprovided at NIM24150 onwards. The following guidance relatessolely to tax years from 1975/1976 to 2002/2003.

NIM24102 explains that there is no prescribed annual maximum ofClass 2 and Class 4 NICs for a contributor who, in any one tax year, is self-employedonly. The total amount of Class 4 NICs payable is calculated by multiplying the profitsbetween the Lower Profits Limit (LPL) and the Upper Profits Limit (UPL) by the relevantClass 4 percentage rate.

NIM24101 explains that there is an annual maximum for those whoare both employed and self- employed. It also explains that without an annual maximum, acontributor who is both employed and self-employed would be liable to pay Class 1, Class 2and Class 4 NICs on all of their earnings/profits above the relevant thresholds in eachemployment held.

Regulation 100, SS(C)R 2001 provides a statutory maximum amount of Class 4 NICs payablewhere a contributor is both employed and self-employed. As the amount of Class 4 NICspayable in such cases is determined by reference to the amount of Class 1 NICs paid by thecontributor it is advisable to familiarise yourself with how the Class 1 and 2 maximum iscalculated. Guidance on the Class 1 and 2 maximum for all tax years up to and includingthe 2003/2004 tax year is provided at NIM37010.

For tax years up to the 2003/2004 tax year a contributor who is liable for Class 1, 2 and4 NICs is prescribed an annual maximum of contribution liability that does not exceed anamount equal to 53 primary Class 1 contributions on earnings at the Upper Earnings Limit.This is the same as the Class 1 + 2 maximum.

However, such a contributor’s liability for Class 4 NICs is limited by regulation 100to that amount which, when added to all the other contributions paid by him for that taxyear, brings the total amount paid up to an amount that equals 53 Class 2 NICs plus themaximum amount of Class 4 NICs payable on profits between the LPL and the UPL.

If, therefore, the sum of the Class 1 and 2 contributions paid equals or exceeds the Class2 and 4 maximum no Class 4 is payable.

If the sum of the Class 1 and 2 NICs paid is less than the Class 2 and 4 NICs maximum,then the amount of Class 4 NICs due is restricted to the amount which brings the totalNICs paid up to the Class 2 and 4 NICs maximum.

NIM24140 provides a table of the various Class 2 and 4 NICsmaximums and Class 1, 2 and 4 NICs maximums for tax years up to and including the2002/2003 tax year.

NIM24130 et seq provides examples of how the Class 4 NICsannual maximum is calculated where the contributor is both employed and self-employed.