The first Part of Schedule 9 restates sections 5, 6, 8 and 9 of the Contributions and Benefits Act, and inserts a new section 6A. References below are to sections of the Act.
Section 5 sets the limits and thresholds for National Insurance contributions and is largely restated. The main change is in subsection (1).
Subsection (1)(a) adds to the existing lower and upper earnings limits a new “primary threshold”. This is to be the point at which employees begin to pay NICs and will be increased over two years to the level of the single person’s tax allowance.
The employer earnings threshold introduced in 1998 as the starting point for employers’ NICs – and currently at the weekly equivalent of the single person’s tax allowance – is renamed the “secondary threshold” in subsection (1)(b).
The section provides that these limits and thresholds are to be set each year by regulations, subject to specified conditions:
First, through subsection (2) the LEL will continue to be tied to the level of the basic state pension;
Second, the UEL is currently set as a multiple of the LEL. It is not possible to raise the UEL to the level the Chancellor has announced whilst keeping to this formula. So subsection (3)(a) is modified to require the UEL to be calculated as a multiple of the new primary threshold.
Subsections (4) and (5) rationalise the existing provisions for defining non-weekly equivalents of the limits and thresholds for those paid otherwise than weekly.
Section 6 establishes when liability arises for Class 1 NICs. The only subsantial change is to subsection (1)(a). This makes the starting point for primary (employee) contributions the new primary threshold, rather than the LEL. Subsection (1)(b) is updated to reflect the renamed secondary threshold.
Section 6A is completely new. It provides that contributions are to be treated as having been paid on earnings which are not less than the LEL and not more than the primary threshold. This enables such earnings to be protected for the purposes of building entitlement to contributory benefits.
Subsection (2) ensures that people earning at or over the LEL do not lose access to contributory benefits and pensions because of the increase in the level of earnings at which employees start to pay NICs.
It has the result that earnings from the LEL up to and including the primary threshold will be treated for benefit purposes (defined in subsection (3)) in exactly the same way as earnings on which contributions have actually been paid – i.e. by treating them as notionally paid. The section also ensures that the change to the structure of employee contributions does not reduce the earnings used for calculating entitlement to SERPS (the “earnings factor”).
Subsection (4) provides a regulation-making power to enable provisions of the Act to be applied with modifications in relation to people who fall within the scope of the section.
This will make it possible to ensure that benefit rights of such people are not enhanced as a result of the “notional payment”.
For instance, liability for Class 1 NICs at present depends on satisfying conditions relating to residence and presence in Great Britain. The regulations would be used to make sure that the same conditions apply before someone could take advantage of the new deeming provision in section 6A.
Sections 8 and 9 contain the rules for calculating the amount of NICs payable. Section 8 deals with primary (employee) Class 1 contributions; section 9 relates to secondary (employer) NICs. Both sections are modified in line with the changes above.
As now, section 8(1)(a) provides for the amount of primary Class 1 contribution to be the “primary percentage” (currently 10%) of the earnings between the starting point for NICs liability and the UEL. The change is that the starting point is now the primary threshold rather than the LEL.
Section 9(1) makes the starting point for secondary NICs the renamed secondary threshold.