Emergency Budget 2010: National Insurance contributionsWednesday, June 23rd, 2010
Rates and thresholds
As indicated in the coalition government’s initial announcement in May 2010, the 1% increase to all NICs rates will go ahead from April 2011 as intended by the previous government.
The Budget documents also state that the primary (employee) threshold, currently £110 per week, will be increased as “already planned” from April 2011. This appears to refer to the previous government’s announcements to align the primary threshold with the personal allowance and then increase it by a further £570 in order to protect those earning below £20,000 from the 1% increase in rates.
In addition, the 2010 Budget announcement is that the secondary (employer) threshold of £110 will be increased by £21 more than it would otherwise be after applying the September 2010 indexation increase. This increase and the increase in the personal tax allowance were Conservative election promises, intended to reduce the effect of the 1% increase in the NICs rates on both employers and employees.
The NICs upper earnings limit (in employment) and the NICs upper profits limit (in self-employment) are currently aligned with the higher rate tax threshold, i.e. £43,875 (the £6,475 personal allowance plus the £37,400 basic rate limit). To maintain this alignment, both upper limits will be reduced to match the new lower basic rate limit from April 2011. This reduction is forecast to be £1,650 but the precise figure will not be clear until the September 2010 RPI increases are announced.
Regional employer NICs holiday for new businesses
The Emergency Budget announced preliminary details of a new NICs holiday scheme for new businesses in targeted areas of the UK. During the three years that the scheme will operate, new businesses which start up in these areas will enjoy a substantial reduction in their employer NICs.
The scheme is intended to promote the formation of new businesses employing staff in those countries and regions most reliant on public sector employment. The proportion of jobs in the public sector is higher in other countries and regions than it is in the Greater South East (London, the South East and the East).
Detailed information about how the scheme will operate has yet to be published but, at present, the following details have been provided:
- The scheme is intended to start not later than September 2010.
- The targeted countries and regions are Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.
- Any new business set up from 22 June 2010 will benefit from the scheme.
- Although the qualifying criteria are not yet available, the requirements will ensure that only businesses which undertake a sufficient degree of new economic activity will benefit.
- New businesses that are set up between 22 June and the date the scheme commences will pay full NICs initially and they will have their NICs “holiday” when the scheme starts.
- Within the qualifying three-year period, qualifying employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment in respect of each of the first 10 employees hired in the first year of business.
- Each “holiday” will last for the first 52 weeks of each employee’s employment, providing the 52 weeks fall within the three year period.
- There is no limit on the amount that may be paid to a qualifying employee but the maximum amount by which the employer can benefit is £5,000 for each employee, £50,000 maximum for the first ten employees.
- Most kinds of businesses will qualify, but there will be some specific exclusions e.g. employees operating under companies caught by the IR35 rules, employees engaged through Managed Service Companies, etc. There will also be exclusions affecting the coal, agriculture and fishing sectors.