Class 2 NI when there is lots of Class 1 paid

Is Iris doing it right vs HMRC calc

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Client earns 130k from employment, £36k from overseas partnership. 
Iris is making and adj to Class 4 NI due, as they have already made significant Class 1 payments via payroll. 
I thought Class 2 was due whatever and Iris has included £153.40.  
HMRC have amended the return and reduced the Class 2 to £88.  After multiple calls they told me they were confident that this is right but couldn't give me a calculation!  I'm not spending hours on it - in the client's favour but can someone point me to the rules or an example calc where the Class 2 is also reduced? 

Replies (5)

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By Tim Vane
16th Jan 2020 16:04

Yes this is fairly common. Generally only the NI contributions office can calculate Nic 2 maxima since only they have all the numbers. Their machine spits out a figure each year and passes it to HMRC. There’s little point querying it since even HMRC don’t have access to the dark depths of the NI computers.

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By David Heaton
16th Jan 2020 16:21

The answer is straightforward.

The annual maximum NIC payable by any individual with multiple jobs or employment and self-employment is 53 weeks' worth of Class 1 on earnings at the UEL (53 × (£892–£162) × 12% = £4,642.80 for 2018-19).

Highly paid people typically pay Class 1 on only 52 weeks' worth of earnings, so they have to pay enough Class 2 to get to the maximum, which is theoretically an extra week's worth of primary Class 1 on earnings at the UEL. For 2018-19: £892 less £162, at 12%, is £87.60. You can't pay more than the annual maximum, so you have to pay 29 weeks' worth of Class 2, which is £85.55.

If you paid for 30 weeks, the total would exceed the annual maximum (unless your Class 1 for 52 weeks was rounded down each month by payroll, creating a bit more headroom between Class 1 NIC paid and the calculated annual maximum).

Thanks (12)
Replying to David Heaton:
Caroline
By accountantccole
16th Jan 2020 16:32

Perfect - that explains why the figure is similar each year.
I will make a note to make a manual adjustment for it next year

Thanks (0)
Replying to David Heaton:
Chris Caspell CTA TEP
By ccaspell
20th Jan 2020 13:32

Straight forward it ain't, but I take my hat off to you sir for your excellent explanation of something that makes most advisers' eyes water.

Thanks (2)
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By EllaB
20th Jan 2020 12:21

If you are registered as agent for the client and look in the 'information to complete your tax return' available online this will usually give the value of Class 2 National Insurance that HMRC are expecting to see within the return based on the recorded class 1 contributions.

Unless this seems wildly out of kilter to what you expect using the annual maxima calculation it saves advising the client £XXX is due and HMRC then amending to £xx.

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