NIM24020 - Class 4 NICs: Structure pre 6 April 2003: Calculation of Class 4 NICs: Examples

The following examples illustrate a normal pre 6 April 2003 Class 4 NICs assessment for a contributor whose:

• profits or gains in the tax year did not exceed the Upper Profits Limit (UPL) – example 1
• profits or gains in the tax year exceeded the Upper Profits Limit (UPL) – example 2.

The examples use the 2002/2003 rates and limits.

Example 1

Mr King had profits of £26,000 chargeable to Schedule D income tax for the 2002/2003 tax year. Mr King was continuously self-employed throughout the 2002/2003 tax year. Mr King’s Class 4 NICs liability is calculated as:

£26,000 (actual profits) - £4615 (LPL) = £21385

£21385 x 7% = £1496.95

Amount of Class 4 NICs due = £1496.95

In addition to the amount of Class 4 NICs due, Mr King was also liable to pay 52 Class 2 NICs.

Example 2

Mr Lewis had profits of £50,000 chargeable to Schedule D income tax for the 2002/2003 tax year. Mr Lewis was continuously self-employed throughout the 2002/2003 tax year. Mr Lewis’ Class 4 NICs liability is calculated as:

£30420 (UPL) - £4615 (LPL) = £25805

£25805 x 7% = £1806.35

Amount of Class 4 NICs due = £1806.35

In addition to the amount of Class 4 NICs due, Mr Lewis was also liable to pay 52 Class 2 NICs. Mr Lewis pays no NICs on any of his profits above the UPL.