National Insurance Contributions proposals
Several rumours were circulating prior to the Chancellor's speech for
reduced National Insurance Contributions (NICs) to help the economy, SMEs
and for those who employ the recently unemployed. In fact none of these or
any other reductions in NICs were announced.
What was announced was a major rise in NICs from April 2011. Employer,
employee and self-employed rates increase by 0.5 per cent from that date.
That means the employer rate will go up from 12.8% to 13.3% before tax
relief. More particularly the employee rates will go up from 11% (being the
not contracted-out rate) to 11.5% up to the upper earnings limit and from 1%
to 1.5% above that limit. Likewise the self employed rate will increase from
8% to 8.5% and from 1% to 1.5% above the upper profits limit.
For 2009/10 the rates remain unchanged and most of the limits increase in
line with inflation. However the upper earnings limit for the employed and
the upper profits limit for the self employed will be aligned with the point
at which higher rate income tax becomes payable. From April 2011 the
threshold at which people start to pay NICs will also be aligned with the
income tax personal allowance.
Our view
This is a significant cost increase from April 2011, not just to
employers, but for all earners. The increase in the employee rate on unlimited
income from 1% to 1.5% will make it more expensive for employers to payroll
benefits in kind. It is perhaps not surprising that there is no further news on
the current proposal for payrolling of benefits in kind.
