Increase to National Insurance Contributions rates and thresholds
The measure
The Chancellor announced an increase of 0.5% in the NIC rates payable by
employees, employers and the self-employed in addition to the 0.5% increase
already stated in the 2008 PBR. There will also be an increase to the primary
threshold and lower profits limit of £570 above those already planned in the
2008 PBR. This is to compensate lower earners for the proposed increase to the
rates of Class 1 and Class 4 NIC.
Therefore, the main rate of Class 1 primary NIC will be 12%, with a rate of 2%
payable on earnings above the upper earnings limit. The main rate of Class 1
secondary NIC will increase to 13.8% (rather than the 13.3% previously
announced) on earnings above the secondary threshold. The increase will also
apply to Class 1A and Class 1B NIC rates. From April 2011, the main rate of
Class 4 NIC will increase to 9%, with a rate of 2% payable on profits above the
upper profits limit.
Who will be affected?
All employees, employers and self-employed individuals who are liable to pay NIC.
When?
The increases will be effective from April 2011.
There will be no changes to the thresholds and rates of NIC payable by
employees, employers and the self-employed for the 2010/11 tax year, with the
exception of minor increases to the Lower Earnings Limit and the Class 2 rate
for volunteer development workers.
The increase to the rate of NIC in addition to the rate increase announced in the 2008 PBR will raise about £7 billion in 2011-12 and annually thereafter and is not unexpected given the level of national debt. However, given it comes at a time when the Government is trying to promote employment, this additional employment cost will not be appreciated. However, we welcome the measure to increase the primary threshold and lower profits limit to assist lower earners.
