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.
|
