Rates and limits Table D

No general changes have been made to the rates of NIC for 2010/11. Two important changes were announced to take effect from 6 April 2011:

• A reduction in the upper earnings limit (UEL) to match the reduction in the threshold for 40% income tax – this means that less NIC will be charged at the full rate and more will be charged at the lower rate that applies above the UEL, so there will be a small cut in contributions.
• The secondary threshold,which is the point at which employers start to pay employer contributions,will increase by £21 above the effect of inflation.

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Tax Tip

When rates change, you may save money by moving income between tax years.

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At present, employers and employees both start to pay NIC when pay exceeds £110 per week. The change to the threshold will mean that no employer's NIC will be payable until the employee earns the 2011/12 equivalent of £131 per week, saving approximately £140 a year for all workers and taking the lowest paid out of employer's NIC altogether. However, the use of different thresholds for employees' and employer's contributions may increase complexity for those who still calculate NIC without using a computer.

These changes are in addition to two other measures which were announced by Mr Darling and which are also set to take effect on 6 April 2011:

• A 1% increase in the rates of NIC so that employers will pay 13.8%, employees will pay 12% (2% above the UEL), and the self-employed will pay 9% (2% above the UEL).
• An increase in the primary threshold (in 2010/11: £110 per week) to compensate lower earners for the increase in rates.

Although the increases in employer's NIC rates were attacked during the election campaign as "Labour's tax on jobs", it appears that they will be implemented.

Class 1A NIC are charged on taxable benefits in kind, and are due from the employer on 19 July following the tax year to which they relate. As the rate will have gone up by July 2011, the Class 1A NIC for 2010/11 will be levied at 13.8%, even though they will relate to a year in which the rate was 12.8%.

Holiday for new businesses

The Budget included a preliminary announcement of a scheme to encourage new businesses outside London and what the Government calls the "Greater South East". New businesses set up from 22 June 2010 will not have to pay the first £5,000 of employer's NIC for each of the first 10 employees hired in the first year of business. That covers all the employer's NIC on a salary of about £40,000, so in effect it is a year's holiday on employer contributions for anyone earning up to that level.

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Tax Tip

Can you benefit from setting up business in a tax- favoured area?

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The scheme is aimed at promoting more private sector employment in parts of the United Kingdom which are particularly reliant on public sector employment (and which will presumably therefore be worst affected by the public sector expenditure cutbacks). It will therefore be restricted to new businesses in Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West. Details of the scheme will be announced shortly. It is likely that there will be a number of restrictions to make sure that only genuinely "new" businesses enjoy the relief, and that the business activity is genuinely located in the qualifying regions and countries.

These two changes together mean that the rates of NIC may be unchanged, but the amounts of NIC deducted from the pay of high earners will increase sharply between March and April. For example, a contracted-out employee earning £4,000pm will pay £307 rather than £277 - an increase of 10%.

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Rates and limits for 2010/11 (unchanged from 2009/10)

Class 1	Weekly	Monthly	Yearly
Primary Threshold - employees	£110	£476	£5,715
Upper Earnings Limit - employees	£770	£3,337	£40,040
Secondary Threshold - employers	£844	£3,656	£43,875

Employer's Contribution	Contracted In	Contracted Out
		Salary Related Scheme	Money Purchase Scheme
On earnings up to PT	Nil	Nil	Nil
On earnings between PT and UAP	12.8%	9.1%	11.4%
On earnings above UAP	12.8%	12.8%	12.8%

Employee's Contribution

Contracted in: 11% on earnings between PT and UEL, 1% above UEL.

Contracted Out: 9.4% on earnings between PT and UAP; 11% from UAP to UEL; 1% above UEL.

Earnings over £97 per week qualify for benefit (2009/10: £95), and must be reported under PAYE, but no NICs are payable until earnings exceed £110 per week.

The reduced Class 1 rate payable by certain married women and widows is 4.85% for earnings between £110 and £844 per week, 1% above £844 per week.

Class 2 (Self-employed)	Earnings over £5,075 per year	£2.40 per week
Class 3 (Voluntary)	No limit applicable	£12.05 per week
Class 4 (Self-employed)	Profits between £5,715 and £43,875	8%
	Profits above £43,875	1%