NIM24190 - 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 exceed the UPL

Case 3 of regulation 100(3)

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 to 2012 onwards. For guidance on the Class 1, 2 and 4 NICs annual maximum for tax years before 2011 to 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 3 of regulation 100(3). In this example the contributor's profits exceed the Upper Profits Limit (UPL) and he is required to pay Class 4 NICs at the additional Class 4 percentage. Since the amount of Class 1 and 2 NICs that the contributor has paid exceeds the Class 2 and main percentage Class 4 NICs maximum, the contributor is also required to pay Class 4 NICs at a rate of 2% on all of his profits between the Lower Profits Limit (LPL) and 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 to 2013 tax year.

Example

Mr Pendleton has been self-employed for the whole of the 2012 to 2013 tax year. His profits for the year are £120,000. He has paid a total of £4,688.80 in Class 4 NICs, of which £3,138.30 is main percentage Class 4 NICs. He has paid 52 Class 2 NICs at £2.65. Mr Pendleton was also employed during the 2012 to 2013 tax year and has paid £5,000 in Class 1 NICs, of which £3,994.32 was paid at the main Class 1 percentage. Mr Pendleton's maximum Class 1, 2 and 4 NICs liability is calculated as follows.

Step 1

Subtract the LPL from the UPL

£42,475 − £7,605 = £34,870

Step 2

Multiply the result of step 1 by 9%

£34,870 × 9% = £3,138.30

Step 3

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

£3,138.30 + (53 × £2.65) = £3,278.75

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. [NB - Class 1 main percentage payment is £3,994.32]

£3,278.75 − £4,132.12 = minus £853.37

Which case of regulation 100(3) does Mr Pendleton 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 Mr Pendleton falls into Case 3 of regulation 100(3). Case 3 provides that the figure of Class 4 NICs 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 × 100 ÷ 9 = nil

Step 6

Subtract the LPL from the lesser of the UPL and the actual amount of profits for the year.

£42,475 − £7,605 = £34,870

Step 7

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

£34,870 − nil = £34,870

Step 8

Multiply the result of step 7 by 2%

£34,870 × 2% = £697.40

Step 9

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

(£120,000 − £42,475) × 2% = £1,550.50

Step 10

Add together steps 4, 8 and 9

nil + £697.40 + £1,550.50 = £2,247.90

Mr Pendleton’s annual Class 4 NICs liability amounts to £2,247.90. He is due to pay Class 4 NICs at 2% on all of his profits between the LPL and UPL. As he has profits above the UPL he is also liable for Class 4 NICs at the additional percentage. As Mr Pendleton has paid a total of Class 4 NICs amounting to £4,688.80 he is due a Class 4 NICs refund.

From 6 April 2024

There is no Class 2 element of the annual maximum calculation and the Class 4 main percentage rate is 6%.