Pre-Budget Report: New higher rate tax band announced

The government announced a new higher rate tax band in today’s pre-Budget Report along with a surprise increase in national insurance contributions (NIC) to be phased in by 2011.

The new 45% tax rate will hit the top 1% of earners, with incomes above £150,000, from April 2011.

Chancellor Alistair Darling also set out plans to increase national insurance contributions (NICs) for the employee, employer and self-employed by 0.5% from April 2011.

In addition, it will align the NICs primary threshold with the personal allowance from 2011.

Matthew Hunnybun, partner, PricewaterhouseCoopers, said the phased introduction of NICs will give employers plenty of time to begin planning for the changes, with tax-efficient benefits holding opportunities for savings. “ The good news that with the delay, there is plenty of time for planning. The increase in national insurance will hit business, but there are ways to limit this through salary sacrifice options,” he explained.

In addition, the Chancellor has cut the income tax personal allowance for those earning over £100,000 in half and removed it for those earning more than £140,000 from 2010/11.

Those at the lower end of the pay scale will benefit from today’s pre-Budget Report however, with the £600 increase in the income tax personal allowance in May 2008 made permanent, with a further £130 increase.

Have your say about the Pre-Budget Report on the Employee Benefits Forum.