National Insurance – Historical Notes
contracted-out and not contracted-out employment. Contracted-out rebates applied solely on earnings between the LEL and the UEL.
From October 1989 From October, employee’s contributions were restructured. A contribution rate of 2% on earnings up to the LEL was introduced. Earnings between the LEL and the UEL attracted the appropriate contracted-out or not contracted-out rate. From April 1999 New principles were introduced aimed at removing anomalies in levels of contribution that occurred previously when earnings moved from one banding to another. A small increase in earnings could result in a relatively large increase in contributions and a reduction in net earnings. No employees’ (primary) contributions became due until earnings reached the LEL. Where earnings exceeded this threshold contributions became due solely on those earnings in excess of the LEL and up to the UEL. No secondary or employer’s contributions became due until earnings reached a new (secondary) threshold equal in value to the Single Person’s Tax Allowance (SPTA). Where earnings exceeded this threshold, secondary contributions became due on all earnings in excess of the SPTA. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS From April 2000 A further Earnings Threshold (ET) was introduced at which employee’s primary contributions commence rather than the LEL. Earnings at the Lower Earnings Limit (LEL) up to and including the Earnings Threshold are treated as earnings on which NICs have actually been paid, even though they haven’t, in order to protect contributory benefits. The contracted-out rebate is still due on the earnings in the banding between the LEL and the ET even though no contributions have actually been paid. This could result in a rebate for both employee and employer, generally shown on payslips as ‘NI Rebate’, rather than the employee contribution being netted off. From April 2001 The Employee’s (Primary) and Employer’s (Secondary) thresholds aligned as the Earnings Threshold (ET), and linked to Income Tax personal allowance, but are still two distinct thresholds. From April 2002 The contracted-out rebate was due as the employee was now contracted-out of S2P, the replacement for SERPS. From April 2003 The employee and employer contributions increased by 1%, the 1% addition to employee contributions extended to earnings above the Upper Earnings Limit (an increase from zero% to 1%). Employees in deferred employment holding a CA2700 pay only 1% on all earnings above the Earnings Threshold in the second employment. The NI rebate (see below) now netted off even when the result is a ‘negative’ contribution and therefore does not appear as a separate entry on payslips. No printing, copying or reproduction permitted. From September 2008 With the introduction of a mid-year increase to the tax thresholds to deliver compensation for
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