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NICs increase will hit lower income earners

The rise in National Insurance Contributions under the Treasury’s rates and allowances for 2008/09 means that lower income earners will feel the pinch next year, according to Grant Thornton.

The consultancy says the changes actually benefit those on higher incomes and in some cases, for those at the current upper limit of NIC and earning £34,840, will benefit individuals to the tune of an extra £390 per year. However, those on low incomes between £5,876 and £15,350 will take a hit to their bank balance of anywhere between £1 and £158 per annum.

Grant Thornton head of national tax office Francesca Lagerberg says: “On the face of it, changes in NIC thresholds look to have made high income earners almost £500 worse off, but when coupled with the reduction in the basic rate of income tax to 20 per cent, it effectively is good news for higher rate taxpayers to the tune of just over £290. The best off will actually be a small group of basic rate taxpayers earning around the current NIC upper earnings limit of £34,840, as they will benefit by almost £400 a year.

“For those on lower incomes, the abolition of the 10 per cent income tax band will in total eat away most, if not all of the savings generated from cutting the basic rate of income tax by 2p to 20p from April 2008.”

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