Extra national insurance burden ahead

One of the significant announcements in the Pre-Budget Report earlier this month is a further increase in national insurance contributions (NIC) which is to take effect from 6 April 2011.

The NIC rates and limits are broadly frozen for 2010/11 at the 2009/10 figures, with a couple of minor exceptions. An increase in the rates of NIC is proposed from April 2011 with an extra 1% being added to the rates applicable to employers, employees and the self-employed. The main rate of Class 1 (employee) NIC will be 12% and the Class 4 rate will be 9%. The employer rate will increase to 13.8%. The additional rate of Class 1 and 4 contributions, payable on pay and profits currently in excess of £43,875, will also increase from the current 1% to 2%. The government has announced that it will protect those at the lower end of the earnings scale by an increase in the point at which contributions become payable. It is therefore expected that employees paying the standard employee rate and earning below £20,000 will pay less NIC overall as a result of the change. The government had previously announced that NIC rates would increase by 0.5% from April 2011. This further increase of 0.5% will represent a significant increase in costs particularly for employers.