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HMRC internal manual

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

NIM24125 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 do not exceed the Upper Profits Limit and who has not paid the maximum amount ofClass 1 and 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 maximum for tax years from 2003/2004see NIM24150.

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

Mr Stevens has been self-employed for the whole of the 2002/2003 tax year. His profits forthe year amount to £20,000. Mr Stevens was also employed during the 2002/2003 tax yearand has 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 Stevens is liable to pay a maximum of£1412.35 in Class 4 NICs. However, as Mr Stevenss profits did not exceed the UpperProfits Limit, he will not pay the maximum amount of Class 4 NICs shown. This is becausethe amount of Class 4 NICs that he will pay will be based on his actual profits. When theamount of Class 4 NICs he will actually pay are added to the amount of Class 1 and 2 NICshe has paid, the total amount of NICs paid will be less that the Class 2 and 4 maximum.That is;

 Class 4 paid on actual profits = £20,000 - £4615 x 7% = £1076.95 Total Class 1, 2 and 4 paid = £500 + £1076.95 = £1576.95 Class 2 and 4 maximum = £1912.35