DO YOU WANT TO PAY LESS NI?

From April 2011, a further 1% will apply to the National Insurance Contribution (NIC) rates applicable to employers, employees and the self-employed. The rise in NIC rates will represent a significant increase in costs for most people, especially employers. Clearly there is more need than ever to mitigate NICs and while strategies are limited, we can work with you on ideas for making savings.

Changes to the rates of NIC are shown in the table below:

	2010/11 rates		2011/12 rates
	Main rate	Additional rate	Main rate	Additional rate
Class 1 (employee)	11%	1%	12%	2%
Class 1 (employer)	12.8%	no upper limit	13.8%	no upper limit
Class 1 A/B (employer)	12.8%	no upper limit	13.8%	no upper limit
Class 4 (self-employed)	8%	1%	9%	2%

Dividends instead of salary/bonus

For limited companies, you might consider paying more dividends rather than a salary/bonus, although this may not suit all businesses so care is needed. Where directors are in receipt of a salary/bonus from a company, the NIC cost may be such that part of the payment could be more cost effectively made as a dividend. However, there are special rules for some companies providing personal services which can mitigate any benefits.

Further strategies

You may also want to consider:

increasing the amount the employer contracts to contribute to company pension schemes
share incentive plans (shares bought out of pre-tax and pre-NIC income)
salary sacrifice arrangements in respect of tax-free benefits in kind, such as the provision of childcare
giving employees other non-cash benefits in kind may reduce their NICs.

Unfortunately, the following actions are unlikely to save NICs: