National Insurance 2010

National Insurance 2010

by Ashley Clark, Director - Narch 2010

NATIONAL INSURANCE CONTRIBUTIONS (NICs)

This is becoming a real “stealth” tax. In the March 2009 Budget the Government announced an increase in NICs of 0.5% for employees and employers and in the surcharge with effect from 6 April 2011. It was announced in the 2009 Pre-Budget Report that these NIC rates are now each scheduled to go up by 1% (instead of 0.5%) to 12% (employee) and 13.8% (employer). Employees will also pay a 2% surcharge on earnings above the upper earnings limit.

For those employees who will be affected by this increased national insurance burden (and are not caught by the new high income excess relief tax charge) salary sacrifice pension arrangements remain attractive. These enable the employee to sacrifice salary (and so save NICs) and, in return, the employer will make a pension contribution of the sacrificed salary plus some or all of the saved NICs.

It is important that the arrangement is established correctly in order to get the desired fiscal consequences. Also it is important to note that the reduction in salary can have other consequences – for example, the individual’s salary is reduced for other purposes including pension benefit entitlement and calculating the maximum mortgage available. Given the Government’s drive to produce more revenue, salary sacrifice arrangements are likely to have a limited shelf life so people should make the most of them while they can.