National Insurance Contributions for Tax Year 2009/2010

Definitions

Lower Earnings Limit (LEL)	the minimum level of earnings at which an employee will qualify for a State Second Pension (S2P). This is also the lower level of earnings which will be used in determining any NI Rebate.
	For tax year 2009/10 the Lower Earnings Limit is £95 per week.
Upper Accrual Point (UAP)	the upper level of earnings on which an employee's S2P entitlement is based (or on which any NI Rebate is determined). For tax year 2009/10 and subsequent years the Upper Accrual Point is fixed at £770 per week.
Upper Earnings Limit (UEL)	the upper level of earnings on which full NICs are charged. The reduced 1% NI contributions will apply to earnings above this level. For tax year 2009/10 the Upper Earnings Limit is £844 per week.
NI Rebate	the Rebate of employer's and employee's National Insurance contributions that is available where an employee is contracted out of S2P. This is based on the employee's earnings between the Lower Earnings Limit (LEL) and Upper Accrual Point (UAP).
	The Rebate will vary depending on the type of pensions vehicle used to contract out of S2P. Where this is a final salary occupational scheme this will be 3.7% (employer) and 1.6% (employee) in respect of the employee's earnings between the LEL and UAP.
	Where this is a money purchase occupational scheme or contracted out money purchase stakeholder pension scheme the Rebate will be 1.4% (employer) and 1.6% (employee) in respect of the employee's earnings between the LEL and UAP. The aggregate Rebate will be determined on an age related basis (varying from 3.0% to 7.4%) and any further Rebate due (ie over and above the amounts mentioned earlier in this paragraph) will be paid by the HMRC NICO to the scheme after the end of the tax year.
	Where this is a personal pension or stakeholder scheme National Insurance contributions will be paid at the contracted in rate and the Rebate, which will be determined on an age related basis, will be paid directly to the member's personal pension by the HMRC NICO after the end of the tax year to which it relates. The Rebates will also vary in accordance with an individual's earnings, in each of the following bands:
	Band	Age related Rebate
	1 (£4,940 - £13,900)	9.4% - 14.8%
	2 (£13,901 - £31,800)	2.35% - 3.7%
	3 (£31,801 - £40,040)	4.7% - 7.4%
Primary Threshold	the level of earnings at which employees start to pay Class 1 National Insurance contributions.
	For tax year 2009/10 this is £110 per week.
Secondary Threshold	the level of an employee's earnings at which the employer starts to pay Class 1 National Insurance contributions.
	For tax year 2009/10 this is £110 per week.

Employees - Class 1

Contracted in	Nil on first £110 per week (i.e. up to Primary Threshold)
	11% of £110.01 per week to £844 per week.
	1% on earnings above £844 per week.
Contracted out via occupational scheme	Nil on first £110 per week (i.e. up to Primary Threshold)
	9.4% of £110.01 per week to £770 per week
	11% of £770.01 per week to £844 per week.
	1% on earnings above £844 per week.
	The employee's NI Rebate is still payable in respect of the employee's earnings between the LEL and UAP including those in excess of the LEL and up to and including the Primary Threshold. In the first instance, the Rebate reduces the National Insurance contributions payable by the employee. However, where the National Insurance contribution payable by the employee is reduced to nil, the excess Rebate will be available for the employer to set against his overall National Insurance contribution bill.
Married Women and Widows Reduced Rate	4.85% of £110.01 to £844 per week.
	1% on earnings above £844 per week.

Employer - Class 1 Contributions

Weekly Earnings	Contracted In %	Contracted Out
		COSR	COMP**
		%	%
On first £110	Nil	Nil	Nil
£110.01-£770	12.8	9.1	11.4
Over £770	12.8	12.8	12.8

Although the reduced level of National Insurance contributions only applies to the employee's earnings in the band between the Secondary Threshold (£110 per week) and the UAP (£770 per week), the NI Rebate is still available in respect of the employee's earnings between the LEL and UAP, including those earnings between the LEL (£95 per week) and the Secondary Threshold (£110 per week). Employers are able to reduce their overall National Insurance contributions liability to reflect the Rebate applicable to the employer's contributions on the employee's earnings between £95 per week and £110 per week.

** Where a COMP (Contracted Out Money Purchase Occupational Scheme) is involved the Rebate is determined on an age related basis and any additional Rebate due over and above that shown above will be payable by HMRC NICO to the scheme after the end of the tax year. This will also apply to a Contracted Out Money Purchase Stakeholder Pension Scheme (COMPSHP).

COSR is a Contracted Out Salary Related Occupational Scheme.

Self-Employed

Class 2 (lower profits limit)	£2.40 per week flat rate. (applicable where profits are less than £5,075 per annum)
Class 4	8% of profits between £5,715 p.a. and £43,875 p.a.
	1% on profits above £43,875 p.a.

Voluntary Contributions

Class 3

£12.05 per week

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The contents of this Bulletin are based on the proposals put forward by the Chancellor in his Budget speech and explained in documents subsequently published by HMRC and the Treasury.
All Budget proposals may be subject to change before the Finance Act is passed. References to spouse, husband and wife and married couples include references to registered civil partners and civil partnerships.
This Bulletin is provided for general consideration only and no action should be taken or refrained from based on its contents alone. Accordingly, no responsibility can be accepted for any loss occasioned as a result of any such action or inaction.
Professional advice must always be taken.

This news item is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at July 2008. No action must be taken or refrained from based on its contents alone. Accordingly no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.

Burley Financial Services Ltd is a private limited company registered in England and Wales under company no. 121 7536.
Burley Financial Services Ltd is authorised and regulated by the Financial Services Authority.
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