National Insurance Contributions – NICS rate and thresholdsFriday, December 18th, 2009
There are no changes to NICs rates from April 2010.
The only change to NICs thresholds is an increase in the lower earnings limit (LEL) from £95 to £97 per week, £412 to £421 per month.
All NICs rates will increase by 1% from April 2011, not by ½% as announced in the 2008 Pre-Budget Report. At the same time, to limit the impact of the increase on lower earners, the primary (employee) earnings threshold (ET) will increase by an extra £570 – but not the secondary (employer) ET.
Class 1 NICs thresholds are reviewed each year and, although they have generally been increased in line with inflation, there are no specific rules for automatic annual increases as there are with tax thresholds and allowances.
- The lower earnings limit (LEL) is currently linked to the weekly rate of the basic state pension, rounded down to the nearest whole pound. The legislation has already been amended to remove that link, likely from 2012.
- The primary (employee) and secondary (employer) earnings thresholds (ET) are generally reviewed in line with inflation although there are no statutory rules to that effect. They were set at the same level as the tax threshold but the rate diverged for 2008/09 when the tax threshold was increased mid-year. The 2008 Pre-Budget Report (PBR2008) indicated that the primary ET is to be realigned with the tax threshold from April 2011.
- The upper accrual point (UAP) has a fixed value and does not change each year.
- The upper earnings limit (UEL) was aligned with the higher rate tax threshold in April 2009 and the intention appears to be to maintain that alignment.
The Pre-Budget Report 2009 (PBR2009) makes no changes to the contribution rates from April 2010. The only threshold changing from April 2010 is the LEL, which will be increased from £95 to £97 by means of Regulations. This maintains the link with the basic state pension which, despite negative inflation, is increasing by 2.5% to £97.65.
The Class 1 NICs thresholds for 2009/10 and 2010/11 are as follows:
|Lower Earnings Limit (LEL)||Earnings Threshold (ET)||Upper Accrual Point (UAP)||Upper Earnings Limit (UEL)|
* These values are specifically defined in statute. All other values are calculated according to statutory uplift and rounding rules.
In PBR2008, the Chancellor announced that, from April 2011, all Class 1 NICs rates would be increased by 0.5%. For example, the full employee rate would increase from 11% to 11.5%; the full employer rate from 12.8% to 13.3%; the additional primary rate on earnings above the UEL would increase from 1% to 1.5%. The Class 1A and Class 1B rates would also increase to 13.3%. At the same time, the primary (but not the secondary) NICs earnings threshold, which went out of alignment with the personal tax allowance in September 2008, would be realigned with whatever the personal allowance is from April 2011.
However, in PBR2009, the Chancellor changed this April 2011 increase to 1%. The full employee rate will increase to 12%; the employer rate to 13.8%; the additional primary rate to 2%. All of the contracted-out rates will also rise by 1%. There will, however, continue to be a 0% employee contribution rate on earnings between the LEL and the primary ET. A National Insurance Contributions Bill will be required to enact these changes.
With regard to the PBR2008 announcement that the primary ET will be realigned with the tax threshold from April 2011, one of PBR2009 documents states:
“The primary threshold … will be increased by £570 for 2011-12 above plans announced in the 2008 PBR to compensate the lowest earners for the increase in the Class 1 … rates.”
Another document states:
“Those paying the standard employee rate and earning under £20,000 will pay less NICs overall as result of these changes.”
These quotations appear to indicate that the primary ET will be increased to a rate higher than the tax threshold from April 2011. For an employee earning £20,000 to pay the same NICs in 2011/12 as 2010/11, the weekly primary ET would have to increase to about £132.80 per week (£6,906 pa), well above the current weekly tax threshold of £124.52 (£6,475 pa).
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