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Radical rethink over NIC

Gordon Brown announced radical reform of National Insurance to encourage job creation and cut down on red tape.

At the bottom end, the main change is the removal from April 6, 1998 of the 2 per cent entry fee payable once earnings reach £64.

For employers, from April 6, 1999, no NIC will be due until earnings exceed the personal allowance and even then only the portion of earnings in the excess of this amount will bear NIC. At current levels, this means no NIC will be due on weekly earnings up to £81.

At the upper end, however, all earnings over the new lower earnings limit will attract employers&#39 NIC at 12.2 per cent

One of the striking impacts of these changes for financial advisers to small businesses may be the increased attraction of paying justifiable salary to working spouses up to the personal allowances with tax and NIC freedom. Pensioning this salary could then take place so that the cost could even be substantially borne by the tax and NIC saving generated from the redirection of funds.

The increase in the rate of NIC applicable to employer contributions may cause some company owners to look more carefully at remuneration by way of dividend as opposed to salary.

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