Calculating NI - slightly confused

glider3560

Given the monthly salary of £2000 (not my actual salary amount) and being on NI category D (contracted out), how would we calculate the NI contributions?

The HMRC website calculator (and my employer) would calculate this as £142.42.

However, the rate is 12% (less 1.4% rebate) of salary over £634 per month, so I would make the contribution £144.80.

How do HMRC and my employer get to their figure? I can't seem to work it out...?

Dazed_and_confused

I think nic is actually worked out using tables rather than a calculation like you have described. Have a look at revenue booklet CA39

chrisbur

glider3560 wrote: »

Given the monthly salary of £2000 (not my actual salary amount) and being on NI category D (contracted out), how would we calculate the NI contributions?

The HMRC website calculator (and my employer) would calculate this as £142.42.

However, the rate is 12% (less 1.4% rebate) of salary over £634 per month, so I would make the contribution £144.80.

How do HMRC and my employer get to their figure? I can't seem to work it out...?

Your calculation is correct as far as it goes but there is another step needed. You did the 1.4% rebate on the amount that you pay but you also get a rebate on some that you do not pay. The rebate is to reduce your NI by 1.4% compared to someone who is not contracted out, but you both have earnings which fall between the lower earnings limit and the earnings threshold which count for NI but have no NI deducted, currently this is £170 for monthly pay. To give you your 1.4% reduction for this bit £2.38 (ie 1.4% of £170) is deducted from your NI cost for any month you earn over the earnings threshold. £144.80 less £2.38 is the £142.42.

glider3560

Thank you chrisbur, that explains things perfectly