NIM01011 - Class 1 structural overview: earnings limits/thresholds and NICs rebate: 2001 to 2002 tax year onwards
Earning limits/thresholds
Regulation 10 of The Social Security (Contributions) Regulations (SSCR) 2001 (SI 2001 No 1004)
There is a Lower Earnings Limit (‘LEL’, see NIM01005) and a Primary and a Secondary Threshold (see NIM01008). No contributions are paid on earnings between the LEL and the thresholds, with NICs becoming payable only when earnings exceed the thresholds. However, primary contributions (see NIM01001) are treated as having been paid on earnings at the LEL (see NIM01005) up to and including the Primary Threshold (see also NIM01007 ).
There is also an Upper Earnings Limit (UEL). Primary Class 1 NICs are payable at the standard percentage rate on earnings up to the UEL and at a lower percentage rate on earnings above (see NIM01009). Secondary Class 1 NICs are payable at the standard percentage rate on all earnings above the UEL.
For guidance on the structure of Class 1 NICs from 6 April 2003 (see NIM01100).
For guidance on the structure of Class 1 NICs from 6 April 2009 (see NIM01200).
For further guidance on calculating and recording NICs, including NICs rates, see NIM11000 onwards. If aggregation of earnings is involved (NIM01004), see also NIM10000 onwards.
NICs rebate
Up to 5 April 2016, when contracting-out ceased, some employers operated contracted-out pension schemes, where they and their employees who were members of the schemes receive a reduction in their NICs. The reduction, for both employees and employers, was realised via a reduction in the NICs percentage rate applied to earnings between the LEL and the UEL. The percentage rate differed for employees and employers and for the different types of contracted-out schemes. The difference between the full contracted-out rate and these reduced rates is known as the ‘contracted-out rebate’.
For further information about contracting-out see NIM01017. For further guidance on calculating and recording the contracted-out rebate, including rebated rates, see NIM11000 onwards. If aggregation of earnings is involved (see NIM01004), see also NIM10000 onwards.