National Insurance Contributions (NI)
As previously announced, NI contributions will increase by 1% for both employees and employers from 6 April 2011.
In order to compensate employers and employees, the primary and secondary thresholds (that at which employees and employers, respectively, start to pay NI) have been increased by more than inflation, to £139 and £136 per week respectively
The upper earnings (or profits for the self employed) limit has been reduced to £42,475 to align it with the higher rate tax threshold (ie the total of the personal allowance for those under 65 and the basic rate tax limit).
NI thresholds and the fixed class 2 NI rate will in future increase in line with CPI rather than RPI.
Comment: For those of you paying yourselves the National Insurance limit, this means that you should increase your pay to £7,072 per annum (£589.33 per month).
The actual NI thresholds can be confusing, so I thought it might be useful to take a moment to explain them.
For the employed: Firstly, there is the ‘Lower Earnings Limit’ (£102 per week for 2011/12) – this is the threshold for entitlement to certain benefits and for NI credits. Next, there are the ‘Primary’ and ‘Secondary’ thresholds – these are the thresholds above which the employee and employer respectively start to pay NI. Then there is the ‘Upper Earnings Limit’, above which the employee’s (but not the employer’s) national insurance rate decreases to 2%. To further complicate things, there is another threshold called the ‘Upper accruals point’ – this is all to do with state second pension.
For the self employed, there are upper and lower limits on Class 4 (income related) NI which broadly correspond to the Secondary Threshold and Upper Earnings Limit respectively. There is also a small earnings exception of £5,315 per annum, below which you can choose not to pay Class 2 NI (the fixed weekly amount).
National Insurance holiday for new businesses
As announced in June 2010, anyone who sets up a new business outside London, the South East and the Eastern region within the next three years will be exempt from up to £5,000 of employer national insurance payments for each of their first 10 employees hired.
The scheme is still not legally enacted, but presuming the legislation is passed, any qualifying new business set up from 22 June 2010 will receive the help.