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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 3 of regulation 100(3): profits do not exceed the UPL

NIM24170 onwards provides guidance on the calculation method used to determine the Class 1, 2 and 4 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 2011/2012onwards. For guidance on the Class 1, 2 and 4 maximum for tax years before 2003/2004 see NIM24120 onwards.

The following example illustrates the Class 1, 2 and 4 maximum calculation for a contributor who falls into Case 3 of regulation 100(3). In this example the contributor’s profits do not exceed the UPL and he is not required to pay any Class 4 NICs at the additional Class 4 percentage. However, since the amount of Class 1 and 2 NICs that the contributor has paid exceeds the Class 2 and main Class 4 NICs maximum, the contributor is required to pay Class 4 NICs at a rate of 2% on all of his profits between the Lower Profits Limit (LPL) and the Upper Profits Limit (UPL). The contributor is not required to pay any Class 4 NICs at a rate of 9%. This example should be read in conjunction with NIM24175 and NIM24178

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

### Example

Mrs Jones has been self-employed for the whole of the 2012/2013 tax year. Her profits for the year are £30,000. She has paid £2015.55 in main percentage Class 4 NICs. She has paid 52 Class 2 NICs at £2.65. Mrs Jones was also employed during the 2012/2013 tax year and has paid £4200 at the main Class 1 percentage. Mrs Jones’ maximum Class 1, 2 and 4 NICs liability is calculated as follows.

Step 1

Subtract the 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.

£3278.75 - £4337.80 = minus £1059.05

Which Case of regulation 100(3) does Mrs Jones fall into?

If the result of step 4 is a negative figure there are no Class 4 NICs payable at the main Class 4 percentage and the result of step 4 is treated as nil.

As the figure produced by step 4 is a negative figure Mrs Jones falls into Case 3 of regulation 100(3). Case 3 provides that the figure of Class 4 produced at step 4 is treated as nil. 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

nil x 100/9 = nil

Step 6

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

£30000 - £7605 = £22395

Step 7

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

£22395 - nil = £22395

Step 8

Multiply the result of step 7 by 2%

£22395 x 2% = £447.90

Step 9

Multiply by 2% the amount of profits in excess of the UPL

There are no profits above the UPL.

Step 10

Add together steps 4, 8 and 9

nil + £447.90 + nil = £447.90

Mrs Jones’ annual Class 4 liability amounts to £447.90 She is due to pay Class 4 NICs at 2% on all of her profits between the LPL and the UPL. As she has no profits above the UPL she is not liable for Class 4 NICs at the additional percentage. As Mrs Jones has paid a total of Class 4 NICs amounting to £2015.55 she is due a Class 4 NICs refund.