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:

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: