Annual maxima

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Annual maxima
  • Deferment
  • Calculation of annual maximum

There is an ‘annual maxima’ of contributions applying to any individual for a ‘contribution year’. The contribution year is the same as the tax year. These ‘annual maxima’ rules apply where the earner either has two employments (and is therefore paying Class 1 NICs twice) or he is both employed and self-employed (and is therefore paying Class 1, Class 2 and / or Class 4 NICs).

Deferment

Where an individual can demonstrate they will be due refunds of Class 1 NICs it may be possible to make an application for deferment of contributions, see the Deferment guidance note. This avoids the need to undertake the relatively complex annual maxima calculations. It is not possible to make an application to defer Class 2 or Class 4 NICs.

Calculation of annual maximum

There are two tests available to perform this calculation. ‘Test 1’ compares Classes 1 and 2 and allows an individual to reclaim any excess of Class 2 (and then, if appropriate, any of the Class 1). ‘Test 2’ may allow a refund of Class 4 contributions. There is no time limit for requesting a repayment.

There are fillable proformas available for the following years for both tests:

  • Pro forma ― fillable ― annual maxima 2018/19
  • Pro forma ― fillable ― annual maxima 2017/18
  • Pro forma ― fillable ― annual maxima 2016/17
Test 1

Test 1 applies when either the taxpayer has more than one employment, or has a self-employed trade as well as a job and is therefore paying both Class 1 and Class 2 contributions.

The legislation contains a series of steps to follow to calculate the maximum NICs payable in the year as follows:

Step 1: calculate

More on National insurance: