Following my article on what Income Tax, this article (leading up to the Queen’s Speech on 19 December 2019) looks at what the Conservative Party has pledged regarding National Insurance.
This information is from their 64-page Manifesto ‘Get Brexit Done, Unleash Britain’s Potential’. Given that the Conservative Party have a majority in the House of Commons, this seems to be relevant at this time.
Unlike Income Tax where there is a sharing of responsibilities between Westminster (UK) and Holyrood (Scotland) and Cardiff Bar (Wales), there is no sharing of National Insurance.
Therefore, any announcements that are made from Westminster or in a Manifesto can safely be assumed to apply UK-wide. Whilst Northern Ireland may have separate primary NICs legislation, it mirrors that in Great Britain.
Budget 2011 announced that the basis for the indexation of the following would be in accordance with Consumer Prices Index (CPI) inflation at the September preceding the start of the tax year to determine:
- The Class 1 Lower Earnings Limit (LEL)
- The Class 1 Primary Threshold (PT) now aligned to the Secondary Threshold (ST)
- The rate of Class 2 NICs for the self-employed
- The rate of Class 3 ‘voluntary’ NICs
- The Class 4 Lower Profits Limit (LPL), above which Class 4 NICs become payable by the self-employed
Therefore, September 2019’s CPI inflation figure of 1.7% is important. However, there is nothing to say that this unwritten rule about indexation cannot be discontinued.
I detail the pledges (the formal promises) that the Conservatives made in their 2019 Manifesto:
- As with Income Tax, there is the pledge that ‘We will not raise the rate of income tax, VAT or National Insurance’. This is referred to as a ‘tax guarantee’ and will apply for the length of the Parliamentary session. This applies to that rates of National Insurance Contributions (NICs) payable, not the thresholds
- ‘We will raise the National Insurance threshold to £9,500 next year’. This seems to be a pledge to raise the Primary Threshold from the current £8,632 – i.e. increasing the threshold at which the employee starts to pay NICs. This seems to fulfil the other pledge to give a ‘tax cut for 31 million workers’. Will this also apply to the employer or will the alignment of the Primary and Secondary Threshold cease in 2020/21?
- ‘Our ultimate ambition is to ensure that the first £12,500 you earn is completely free of tax’. Interesting that the, now, Government is referring to NICs as a tax whereas they have referred to it previously as an employment tax. It is also interesting that £12,500 is mentioned which is, presumably referring to the current value of the Personal Allowance. From tax year 2021/22, the Personal Allowance is legislated to increase by the value of CPI inflation at the September preceding the start of the tax year so I am not sure this alignment of tax and NICs thresholds is accurate
- With regard to supporting employers who employ ex-Service personnel, there is the pledge to ‘reduce National Insurance contributions for employers’. Does this mean another category letter for payroll and software developer professionals to have to deal with?
- There is also the pledge to ‘increase the Employment Allowance for small businesses’. This is the £3,000 that is currently on course to be restricted to employers with Class 1 NICs of less that £100K in the previous tax year and, for all others, to be regarded as De Minimis State Aid from April 2020. Are we scheduled for an increase to the £3,000 and / or will there be another complicated test that employers will have to deal with?
Professionals need certainty at the start of the tax year and a Budget cannot come soon enough (though we are probably looking at February). It seems as though we are on course for an increase in the Primary Threshold.
Let’s hope that this all is all we have to get our heads around for the start of the tax year. We are still waiting to see progress of the Employment Allowance (Excluded Persons) Regulations 2019 which are enough of a palaver!