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Budget NIC changes leave employers behind

The class 1 NIC threshold is raised for employees, but not so much for employers, leaving a gap. New exemptions are proposed and a temporary reimbursement of SSP for smaller employers.

12th Mar 2020
Director Writetax Ltd
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Employee benefits, NIC and PAYE

As previously announced, the starting point for both primary Class 1 National Insurance contributions (NIC) and Class 4 contributions for the self-employed is increased to £9,500 for 2020/21. This represents the first step in the Government’s plan to align the point at which individuals start paying tax with the personal allowance of £12,500.

Employees and employers 

The starting point for employer’s secondary class 1 NIC is set at the lower level of £8,788 per year. As the primary and secondary NIC thresholds are no longer aligned, employer’s contributions, but not employee contributions, are due on earnings between £166 and £183 per week (£732 and £792 per month; £8,788 and £9,500 per year).

For class 1 purposes, the lower earnings limit is set at £120 per week for 2020/21, the secondary threshold at £169 per week, and the primary threshold at £183 per week. For the upper earnings limit, the upper secondary threshold for under 21s and the apprentice upper secondary threshold remains at £962 per week. The main and additional rates of class 1 contributions are also unchanged at, respectively, 12% and 2%, and the secondary rate remains at 13.8%.

Self-employed 

For 2020/21, class 2 contributions are payable by the self-employed at £3.05 per week where profits exceed the small profits threshold, which rises to £6,475. For class 4 purposes, the lower profits limit is increased to £9,500, while the upper profits limit remains at £50,000. The main and additional Class 4 rates remain at, respectively, 9% and 2%.

The rate of Class 3 contributions in increased to £15.30 per week.

PAYE threshold

The personal allowance for 2020/21 is frozen at £12,500. As a result, the PAYE threshold remains unchanged at £240 per week, £1,042 per month and £12,500 per year.

Employment Allowance

The National Insurance employment allowance which reduces the secondary Class 1 National Insurance payable by eligible employees is increased by £1,000 to £4,000 for 2020/21. However, as previously announced, access to the employment allowance is restricted from 2020/21 to employers whose National Insurance contributions liability in the previous tax year was less than £100,000.

Bursary payments to care leavers

A statutory exemption for income tax and national insurance purposes is to be introduced for the £1,000 bursary that is payable to individuals aged 16 to 24 who are in or who have left care and who have started an apprenticeship. The bursary was introduced by the Education and Skills Funding Agency (ESFA). 

For income tax purposes, legislation will be introduced in the Finance Bill 2020. The measure will have effect from the date of Royal Assent to the Finance Bill 2020 once regulations have been made to specify details of the bursary. Regulations will introduce a disregard for class 1 national insurance purposes.

No NIC for veterans’ employers

The Government is to consult on the introduction of a national insurance holiday for employers of veterans in their first year of civilian employment. The exemption will remove employer’s class 1 National Insurance on earnings up to the upper earnings limit. It will apply from April 2021.

Scottish social security benefits

Legislation is to be introduced to create an exemption from income tax for three new Scottish social security payments; Job Start, Disability Assistance for Children and Young People and Scottish Child Payment. 

SSP relaxations for coronavirus

As previously announced, the forthcoming COVID-19 Bill will allow, temporarily, SSP to be paid from the first day of sickness, removing the requirement to serve three waiting days. Availability of SSP will be extended to cover individuals who have been asked to self-isolate and also for people who are caring for others in their household who display COVID-19 symptoms and have been asked to self-isolate. 

A temporary alternative to the Fit Note is being introduced, which can be obtained from NHS-111 and which can be used as evidence from work where necessary. 

Employers with fewer than 250 employees will be able to claim a refund of SSP related to COVID-19 absences. The refund will be capped at two weeks’ SSP per employee.

 

Budget

Replies (1)

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By Charlie Carne
12th Mar 2020 14:08

The Chancellor should have taken the opportunity (whilst increasing the Employment Allowance and capping it for payrolls below £100k of NI) to correct an anomaly and prevent recovery of er's NI on directors' salaries (rather than the current, daft system that only prohibits recovery of EA for payrolls where a director is the sole employee; a rule which can be easily got around by employing someone for one week in the year, paid above the primary threshold).

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