National Insurance Contributions

Rates and limits (Table D)

The rates and thresholds for NIC were announced in the Autumn Statement. The threshold at which employees start to pay NIC increases from £7,605 to £7,755, and the employer threshold increases from £7,488 to £7,696, representing a small saving. The upper earnings limit, at which the rate for employee contributions drops from the full 12% to 2%, falls from £42,475 to £41,450, offsetting the increase in income tax arising from the lowering of the starting point for the 40% rate. For someone earning £42,475, there is an overall reduction in NIC of about £120 for the year.

Employer contributions

The Chancellor announced that a relief for the first £2,000 of employer’s NIC will be introduced for all employers from 2014/15. The smallest businesses may not have to pay any employer’s NIC at all; the effect on larger employers will be negligible.

Tax Tip

This is a welcome relief – watch out for any conditions attaching

Long-term changes

The Chancellor also confirmed a further radical change: the lower contracted-out NIC rates will cease in 2016. Those who currently pay these rates – who must be members of a salary-related employee pension scheme – will pay more NIC as a result, but will receive a larger state pension at retirement.