I'm studying personal tax and am trying to work out what the national benefit is of allowing employees earning above the lower earnings limit but below the primary threshold to get national insurance credits without paying contributions. Can anyone explain?
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probably to help those low wages. but company directors do this and i am not in favour, time for a change to the system
There was a time a lot of years ago when the personal allowance for income tax and the point where you paid NI were the same. Then the Conservative /Liberal coalition pushed up the personal allowance but the NI threshold wasn't increased by anything like the same amount.
There was a time a lot of years ago when the personal allowance for income tax and the point where you paid NI were the same.
Was there ?
Between 2001/02 and 2007/08 the Primary Threshold for NI was almost exactly the same as the Personal Allowance.
A political slight of hand where one gets kidded into believing that this distinct tax is for one's pension so the state requires to have rules as to who qualifies for it by right based on number of years qualifying- frankly the sooner employee contributions get mixed into income tax the better, this total rate can then be extended to rents etc and we all get a more realistic view re our "real" tax rates.
A total farce that politicians ought to have sorted years ago.
We have a crazy NI system.
Directors drawing a small salary of just over £6,000 and zillions in dividends pay no NI at all.
Self employed on <£,6000 can afford to pay £150 a year to cover themselves with Class 2 contributions.
The unemployed on bu99er all income can apparently afford £750 Class 3.
I can remember the days when Class 3 contributions were 10p a week less than Class 2.
The whole system has come together piecemeal over the last 70 years, leaving boatloads of anomalies and it needs to be rethought from the ground up.
That said, dividend tax has gone part way to restoring the balance. I'd go further and charge close company dividends to NI.
Broadly agree with other remarks.
The complicating factor with NI is that it governs people's entitlement to state pension and, to a limited extent, to out of work benefits (Jobseekers' allowance etc).