National insurance contributions

The Government has announced that it is working toward the integration of the income tax and national insurance systems in order to make the system more user friendly. A consultation document will be published later this year. The Government has stated that:

• the contributory principle will be maintained
• National Insurance Contributions will not be extended to pensioners or to pensions income, savings income or dividends.

From 2012/13 the basis for indexing the national insurance contribution rates will be the Consumer Prices Index (CPI) rather than the RPI for the following rates, limits and thresholds:

• class 1 lower earnings limit and primary threshold
• class 2 small earnings exception
• class 4 lower profits limit, and
• rates of class 2 and 3.

The secondary threshold for class 1 employers' national insurance contributions will continue to rise by the increase in the RPI from April 2012 to 2015/16.  The increase from 12.8 per cent to 13.8 per cent will go ahead as planned on 6 April 2011.  The annual levels of the class 1 upper earnings limit and the class 4 upper profits limit will continue to be aligned with the income tax higher rate threshold [the sum of the personal allowance and the basic rate limit].