BUDGET IN DEPTH: Chancellor introduces ‘stealth tax’

In his speech, the chancellor announced national insurance contributions would increase by 1% from next April for employers, employees and the self-employed, and cleverly worded the introduction of a new 1% NI charge on all employee earnings over £30,420, soon to be pushed up to be £30,940.

Alastair Kendrick, Ernst & Young tax director, said: ‘It is unfortunate that the chancellor could not have spelt out more clearly the changes, to avoid people not appreciating the impact on them and business.

‘This is a stealth tax both on individuals and businesses, which comes as a nasty shock.’

Previously there was no national insurance charge for earnings over the ceiling, meaning the chancellor has created a completely new method of accruing income. This may increase year in year out, creating a annual stealth tax increase.

One way of looking at the increase effect is that it equates to a tax charge of 23% for basic rate income tax payers, and 41% for higher rate payers.

Hidden in the documentation is the bad news for employers that their employment costs are to increase by 1% due to the employers NI contribution being raised.

Brown said: ‘Everyone who can should make a fair contribution (to the NHS).’

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