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HMRC internal manual

# Class 4 NICs: structure: annual Class 4 NICs maximum from 6 April 2011: contributors who are employed and self-employed: examples: Case 2 of regulation 100(3): profits exceed the UPL

NIM24170 onwards 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 and self-employed during the same tax year. The calculation method shown applies to tax years from 2011/2012 onwards. For guidance on the Class 1, 2 and 4 NICs annual maximum for tax years before 2011/2012 see NIM24120 onwards.

The following example illustrates the Class 1, 2 and 4 NICs annual maximum calculation for a contributor who falls into Case 2 of regulation 100(3). In this example the contributor’s profits exceed the Upper Profits Limit (UPL) and he is required to pay some Class 4 NICs at the additional Class 4 percentage. However, since the amount of Class 1 and 2 NICs that the contributor has paid does not exceed the Class 2 and main percentage Class 4 NICs maximum, this contributor is also required to pay some Class 4 NICs at 9% and some at a rate of 2% on his profits below the UPL. This example should be read in conjunction with NIM24175 and NIM24177

The example uses the rates and limits in force during the 2012/2013 tax year.

### Example

Mr Dujardin has been self-employed for the whole of the 2012/2013 tax year. His profits for the year are £70,000. He has paid £3688.80 in Class 4 NICs, of which £3138.30 has been paid at the main Class 4 percentage. He has paid 52 Class 2 NICs at £2.65. Mr Dujardin was also employed during the 2012/2013 tax year and has paid £3000 at the main Class 1 percentage. Mr Dujardin’s maximum Class 1, 2 and 4 NICs liability is calculated as follows.

Step 1

Subtract the Lower Profits Limit (LPL) from the UPL

£42475 - £7605 = £34870

Step 2

Multiply the result of step 1 by 9%

£34870 x 9% = £3138.30

Step 3

Add to the result of step 2, 53 times the weekly rate of Class 2 NICs

£3138.30 + (53 x £2.65) = £3278.75

Step 4

Subtract from the result of step 3 the aggregate amount of any Class 2 NICs and any primary Class 1 NICs paid at the main primary percentage rate.

£3278.75 - £3137.80 = £140.95

Which Case of regulation 100(3) does Mr Dujardin fall into?

If the result of step 4 is a positive figure but it does not exceed the aggregate of Class 1 NICs payable at the main primary percentage, Class 2 NICs and Class 4 NICs payable at the main Class 4 percentage, the result of step 4 is the maximum amount of Class 4 NICs due at 9%.

On his earnings and profits Mr Dujardin would be liable, and has paid, a total of £6826.60 in NICs. That is £3000 in Class 1 NICs, plus £137.80 in Class 2 NICs plus £3688.80 in Class 4 NICs. The figure produced by step 4 (£140.95) is a positive figure but it does not exceed the total Class 1, 2 and main percentage Class 4 NICs figure of £6276.60 - that is £3000 in Class 1 NICs, plus £137.80 in Class 2 NICs plus £3138.30 main percentage Class 4 NICs. Mr Dujardin therefore falls into Case 2 of regulation 100(3). Case 2 provides that the figure of Class 4 produced at step 4 is the maximum amount of Class 4 NICs payable at 9%. It is then necessary to go to step 5 to 9 of regulation 100(3).

Step 5

Multiply the result of step 4 by 100/9

140.95 x 100/9 = £1566.11

Step 6

Subtract the Lower Profits Limit from the lesser of the Upper Profits Limit and the actual amount of profits for the year.

£42475 - £7605 = £34870

Step 7

Subtract the result of step 5 from the result of step 6.

£34870 - £1566.11 = £33303.89

Step 8

Multiply the result of step 7 by 2%

£33303.89 x 2% = £666.08

Step 9

Multiply by 2% the amount of profits in excess of the Upper Profits Limit

(£70,000 - £42475) x 2% = £555.50

Step 10

Add together steps 4, 8 and 9

£140.95 + £666.08 + £555.50= £1357.53

Mr Dujardin’s annual Class 4 NICs liability amounts to £1357.53. He is due to pay a combination of Class 4 NICs at 9% and 2%. As he has profits above the UPL he liable for Class 4 NICs at the additional percentage. As Mr Dujardin has paid a total of Class 4 NICs amounting to £3688.80 he is due a Class 4 NICs refund.