|
2006 Pre-Budget Report Summary
Employment Issues
National Insurance Contributions
(NICs)
The detailed NIC rates, earnings limits and thresholds proposed for 2007/08 are set out below. The thresholds have been increased but the rates of Class 1 and 4 contributions have been held at their existing levels.
|
National
Insurance rates
|
|
|
2007/08
|
2006/07
|
|
Employees’
threshold
|
£100 pw
|
£97
pw
|
|
Employers’
threshold
|
£100 pw
|
£97
pw
|
|
Upper
earnings limit – employees only
|
£670 pw
|
£645
pw
|
|
Employees’
Class 1 rate on earnings between threshold and upper
earnings limit
|
11%
|
11%
|
|
Employees’
Class 1 rate on earnings above upper earnings limit
|
1%
|
1%
|
|
Employers’
Class 1 rate on earnings above threshold
|
12.8%
|
12.8%
|
|
Class
2 – self-employed flat rate
|
£2.20 pw
|
£2.10
pw
|
|
Class
2 – small earnings exception
|
£4,635
pa
|
£4,465
pa
|
|
Lower
profits limit (for self-employed Class 4
contribution)
|
£5,225
|
£5,035
|
|
Upper
profits limit
|
£34,840
|
£33,540
|
|
Class
4 rate on profits between lower and upper profits
limit
|
8%
|
8%
|
|
Class
4 rate on profits above upper profits limit
|
1%
|
1%
|
|
Class
3 – voluntary
|
£7.80 pw
|
£7.55
pw
|
Although employees’ NICs only become payable once earnings exceed £100 per week, any earnings between £87 and £100 per week in 2007/08 will protect an entitlement to basic state retirement benefits without incurring a liability to NIC.
Managed service companies (MSCs)
In 2000 the government introduced rules to tackle the provision of services through Personal Service Companies (PSCs). These rules have been referred to by the name of the press release of that time, IR35.
PSCs were designed to ‘disguise employment’ by interposing an intermediary, usually a company, between the payer and worker. This minimised the amount of tax and NIC due by paying that worker predominantly with dividends.
MSCs attempt to avoid the IR35 rules. The types of MSCs vary but are often referred to as ‘composite companies’ or ‘managed PSCs’. HMRC have encountered increasing difficulty in applying the IR35 rules to MSCs because of the large number of workers involved and the labour-intensive nature of the work. Even when the IR35 rules have been successfully applied, an MSC can often escape payment of outstanding tax and NIC as they have no assets and can be wound up.
The government has therefore decided to remove MSCs from the IR35 rules and introduce new rules from April 2007. The intention of the new rules is to:
-
ensure that those working in MSCs pay tax and NIC at the same level as other employees
-
alter the travel and subsistence rules for workers of MSCs to ensure they are consistent with those for other employees
-
allow the recovery of outstanding tax and NIC from ‘appropriate third parties’.
Increasing employment opportunities
The government’s long-term goal is to achieve full employment. This means that everyone should be given support and advice to help them to find and keep a job. Under this banner, the government is:
-
improving enforcement of the National Minimum Wage (NMW), with a 50% increase in the resources allocated to tackle non-compliance, and by raising penalties for the seriously non-compliant
-
bringing in measures to simplify and reduce errors in the benefits system.
[Back to top]
|
