Budget 2010: Reduction in national insurance upper earnings limit

The national insurance upper earnings limit will be reduced to keep it aligned with the income tax higher-rate threshold. Exact figures will be confirmed in the autumn.

Based on current Retail Prices Index (RPI) forecasts the basic rate limit will be reduced by £2,500 and the higher rate threshold by £1,650 below the amount the previous Labour government put in place.

These changes will mean higher rate-taxpayers will not benefit from this measure.

The plans inherited from the previous Labour government for nationalinsurance rates to increase by 1 per cent in April 2011 will be †largely reversed by increasing the threshold for employer National Insurance Contributions (NICs) by £21 a week above indexation.

As a result, the number of employees for whom employers pay no NICs will rise by 650,000. This will benefit a number of sectors, including manufacturing.

Clive Fathers, tax partner at Grant Thornton estimated that all staff earning above roughly £20,000 a year will be affected by the increase in national insurance next April. Therefore employers should relook at using salary sacrifice options around benefits.

He said: “All but the lowest paid will be affected [by the increase in NI], so anything employers can do that helps employees is a good thing.”

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To help fund increases in the personal allowance, and ensure that those on higher incomes pay their fair share, the basic rate limit for income tax will be frozen in 2013-14.

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