# National Insurance: the upper earnings limit.



## Quartz (Oct 26, 2011)

Why is there an upper earnings limit on National Insurance? And how much would the Exchequer gain by removing it?


----------



## porp (Oct 27, 2011)

Interesting questions! I reckon so, anyway.

As you may know, and apols if you already do know, the UEL has never applied to employer's secondary Class 1 NIC contributions - so once your wages are above the threshold, the UEL only kicks in for the employee's contributions at the UEL point, whereas an employer carries on accruing a liability. Which is why NIC avoidance has been popular in the past - because on very high salaries, there continues to be real costs to an empoyer, but not the employee.

As you may also know, since 2003 or so, the UEL has kind of not existed. What I mean by that is that a 1% charge does arise on the employee's primary class 1 NIC when the UEL is breached.

As for your first question-not 100% sure, but pretty sure that this relates to the (usually) non-aggregrated way in which Class 1 NIC is applied to earnings. For earners with more than one earning source, and unlike income tax, no account is taken (usually ) of earnings to which NIC has already applied, leading to a potential for high initial deduction rates which would breach the 'annual maxmimum' rule, and leading to year-end refunds etc.

Hope this helps.


----------

