Small businesses to pick up the pension tab

18 October 2004

A hike in national insurance contributions, expected to be announced in the Pre Budget Report, will hit small businesses.

The current amount received in NIC will not be enough to cover the cost of the nation’s retirement shortfall and experts warn that employers will have to pay the deficit.

Malcolm Winston, from our Birmingham office said:

“The Government will be looking for ways of funding the state pension. It is unlikely that the retirement age will rise and much more likely that employee and employer national insurance contributions will increase”.

“The change is likely to have a big effect on salary increases especially in small businesses,” he added.

Class 1 national insurance contributions (NICs) are paid on employees’ earnings, usually by both the employee and employer and are payable on all gross earnings.

Employee NICs are payable at 11% of income above £91 up to £610 per week (£4,745 to £31,720 per year) and 1% of income above this limit. Employees over state pension age or under 16 do not pay NICs.

In addition employer contributions are payable at 12.8% on all earnings above £91 per week as well as on benefits in kind if the scheme is contracted in. Slightly lower rates are payable on earnings up to £610 per week if the employer provides a pension scheme and has contracted out of the state scheme.