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.
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.