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HMRC internal manual

Class 4 NICs: Structure: Annual Class 4 NICs maximum pre 6 April 2003: Contributors who are employed and self-employed: Examples: Profits exceed the Upper Profits Limit but maximum Class 1 NICs not paid

provides guidance on the calculation method used to determine the Class 1,2 and 4 NICs annual maximum liability for a contributor who is both employed andself-employed during the same tax year.

The following example illustrates the calculation for a contributor whose profits for thetax year exceed the Upper Profits Limit but who has not paid the maximum amount of Class 1and 2 NICs payable .

The calculation method shown applies only to tax years up to and including the 2002/2003tax year. For guidance on the Class 1, 2 and 4 NICs annual maximum for tax years from2003/2004 see NIM24150 et seq.

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

Mr Quinn has been self-employed for the whole of the 2002/2003 tax year. His profits forthe year amount to £60,000. Mr Quinn was also employed during the 2002/2003 tax year andhas paid a total amount of Class 1 and 2 NICs amounting to £500.

Step 1

Calculate the Class 2 and 4 maximum for the tax year.

 Class 4 = £30420 (UPL) - £4615 (LPL) x 7% = £1806.35 Class 2 = £2.00 x 53 = £106.00 Class 2 + 4 maximum = £1912.35

Step 2

Deduct from step 1 the amount of Class 1 and 2 NICs paid

£1912.35 - £500 = £1412.35

Step 3

If the result of step 2 is a negative figure, no Class 4 NICs are due

If the result of step 2 is a positive figure that is the maximum amount of Class 4 NICsdue

As the figure at step 2 is a positive figure, Mr Quinn is liable to pay £1412.35 in Class4 NICs. Mr Quinn is restricted to the Class 2 and 4 NICs annual maximum of £1912.35,despite having paid £500 in Class 1 NICs.