NIM24113 | Class 4 NICs: Structure: Annual Class 4 NICs maximum pre 6 April 2003: Contributors who are self-employed only: Example: Self- employed for part of the tax year only

Regulation 100 Social Security (Contributions) Regulations 2001 (SI 2001 No. 1004)

NIM24105 provides guidance on the calculation method used to determine the maximum amount of Class 2 and 4 NICs liability payable by a contributor who is self-employed only.

The following example illustrates that calculation for a contributor whose profits for the tax year do not exceed the Upper Profits Limit (UPL) and who was self-employed for only part of the 2002/2003 tax year.

The calculation method shown applies only to tax years up to and including the 2002/2003 tax year. For guidance on the maximum amount of Class 2 and 4 NICs payable by such contributors for tax years from 2003/2004 see NIM24152.

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

Miss D Green has been self-employed for 48 weeks during the 2002/2003 tax year. Her profits for the year amount to £40,000. Miss D Green held no other employments during the year. Prior to commencing her self-employment Miss D Green was unemployed.

Step 1

Multiply by the appropriate Class 4 NICs percentage, the amount of profits between the Lower Profits Limit (LPL) and the UPL.

£30,420 (UPL) - £4,615 (LPL) = £25,805 x 7% (Class 4 percentage rate) = £1,806.35

Step 2

Multiply the relevant Class 2 NICs rate by the number of weeks of self-employment in the tax year

£2.00 x 48 = £96.00

Step 3

Add together the results of steps 1 and 2

£1,806.35. + £96.00 = £1,902.35

Miss D Green is liable to pay a total of £1,902.35 in Class 2 and 4 NICs for the 2002/2003 tax year.

NB: Although Miss D Green was only self-employed for 48 weeks during the 2002/2003 tax year and her Class 2 liability is adjusted, she is still required to pay Class 4 NICs on all of her profits up to the UPL. She pays no Class 4 NICs on profits which exceed the UPL.