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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. »Ê¹ÚÌåÓýapp 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.

»Ê¹ÚÌåÓýapp 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. »Ê¹ÚÌåÓýapp 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 NIM24178Ìý

»Ê¹ÚÌåÓýapp 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 −ÌýÂ�7,605 =Ìý£34,870

Step 2

Multiply the result of step 1 by 9%

£34,870 ×Ìý9% =Ìý£3,138.30

Step 3

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

£3,138.30 + (53Ìý× £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 −ÌýÂ�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 ×Ìý100 ÷ 9 = nil

Step 6

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

£42,475 −ÌýÂ�7,605 = £34,870

Step 7

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

£34,870 −Ìýnil = £34,870

Step 8

Multiply the result of step 7 by 2%

£34,870 ×Ìý2% = £697.40

Step 9

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

(£120,000 −ÌýÂ�42,475) ×Ìý2% = £1,550.50

Step 10

Add together steps 4, 8 and 9

nil +Ìý£697.40 +Ìý£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

»Ê¹ÚÌåÓýappre is no Class 2 element of the annual maximum calculation and the Class 4 main percentage rate is 6%.