Owner Kate Upcraft Consultancy Ltd
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Payroll: What we know for 2020/21

The 2020 Budget is still five weeks away, but the NIC rates and thresholds have now been announced along with key details for other payroll deductions, as Kate Upcraft explains.

4th Feb 2020
Owner Kate Upcraft Consultancy Ltd
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It’s been a tense few weeks for payroll software developers and tax agents who are trying to prepare employers for the new tax year. The software development cycle for the last 18 years has worked on the basis of having key pieces of tax information announced as part of an autumn statement, rather than being left to a spring budget.

This year was very different. When parliament was dissolved in November 2019, the civil service went into a period of election purdah until mid-December which prevented any discussions about next tax year taking place with policymakers.

If we’d had an early February budget, the timetable for revising software would’ve been tight, but just about deliverable. However, a Budget on the 11 March presents a problem.

February deadline

Some payrolls that pay on 6 April are run at the end of February. Without an announcement of the national insurance rates and thresholds, it wouldn’t be possible to pay people correctly on that first payday for 2020/21. The national insurance liability is not calculated cumulatively unless you are a director.

It was a huge relief when an email arrived on 31 January 2020 announcing the 2020/21 national insurance thresholds.

New NIC thresholds

It is now clear that employees will benefit from a primary class 1 threshold of £9,500, as promised in the Conservative party manifesto. But employers will start paying NIC sooner at £8,788 (a small increase in last year’s threshold of £8,632).

The primary and secondary thresholds for class 1 NIC have been aligned since 2017, which was a recommendation of the Office of Tax Simplification. Now we are back to more complexity as the two NIC thresholds split apart again.

The NIC thresholds for the most common pay frequencies are shown in table 1:

Table 1

Weekly £120 £183 £169 £962 £962 £962
Fortnightly £240 £366 £338 £1,924 £1,924 £1,924
Four-weekly £480 £731 £676 £3,847 £3,847 £3,847
Monthly £520 £792 £732 £4,167 £4,167 £4,167
Yearly £6,240 £9,500 £8,788 £50,000 £50,000 £50,000
There are no changes to NI table letters or percentages, as there was a commitment during the general election not to raise the rates of national insurance for the life of this parliament.

Income tax thresholds

The tax bands have not been announced. However, as the upper earnings limit for NIC has not increased, I presume this means that the 40% income tax threshold remains at this level too.

The expectation is that the personal allowance will remain at £12,500 as the announcement in Budget 2018 was to cover two years. The Conservatives also committed not to increase the rate of income tax during this parliament.

Termination payments

The introduction of Class 1A (employer only) NI on termination payments over £30,000 from 6 April 2020 is not handled via a table letter. The payment of a such a termination award requires the employer to complete a manual calculation and enter that in the Full Payment Submission (FPS).

Employment Allowance

The Employment Allowance will be withdrawn for employers (and connected employers) who have an employer national insurance liability of £100,000 or more for 2019/20.

No action is required to end claims for the employment allowance, as all claims will fall away at the end of this tax year.

Small employers who are still eligible to claim will have to answer numerous additional questions on the Employer Payment Summary (EPS). Restricting the allowance in this way has turned it into de minimus state aid, so the central government have to have a record to prove that the claimants have sufficient headroom in their sectoral de minimis state aid threshold over the two preceding years ahead of the year of claim to allow for the £3,000 of employment allowance.

As the state aid thresholds are quoted in euros (we have adopted the EU state aid regulations into UK law) employers have to convert any de minimis state aid received in sterling into euros using the exchange rate for March that HMRC will publish here.

Auto enrolment

The final piece in the national insurance jigsaw is in respect to auto enrolment thresholds as the qualifying earnings for the and lower bands of pension contributions are currently aligned to the upper and lower earnings NIC limits. I hope that DWP will be able to confirm these thresholds quickly too.

Statutory payments

We already have the statutory payment values for 2020/21:

SMP, SAP, SPP, ShPP, SPBP* £151.20 p.w. from 5.4.20
SSP £95.85 p.w. from 6.4.20
Statutory parental bereavement pay will be introduced in Great Britain only (not Northern Ireland).

Student loan thresholds

Loan type Threshold for payments Rate of deduction
Plan 1 £19,390 9%
Plan 2 £26,575 9%
Postgraduate £21,000 (no change) 6%

Apprenticeship levy

As no announcement has been made in respect of the apprenticeship levy, we assume that the rate will remain at 0.5% and the levy allowance will remain at £15,000 a year.

Scottish rates

We are waiting for Scotland’s budget which takes place on 6 February, although the Scottish government has warned that it may need to make changes to reflect any announcements in the Westminster budget that impact Scotland’s finances.

Welsh rates

Wales has already published its draft budget with no changes for rates to thresholds from 2019/20 as currently drafted.

Replies (8)

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By Charlie Carne
05th Feb 2020 11:29

When I heard that the NIC threshold was rising to £9,500, I welcomed this as an indication of government policy to align NIC and income tax personal allowance (PA) thresholds by the end of this parliament (at 12,500 or whatever higher level the PA reaches by then). As the UEL has been aligned for some years with the level at which higher rate income tax applies, we would soon have one set of lower and upper limits for both tax and NI, which goes a very long way towards the goal desired by many of us to eventually merge tax and NI. I am, therefore, very disappointed to read in this article that the primary and secondary NI thresholds are now being separated again. This is a retrograde step and adds unnecessary complication to PAYE matters.

Thanks (4)
Replying to charliecarne:
By paulfieldcrest
05th Feb 2020 16:10

You and I, and the rest of the thinking population might see it that way, Charlie.

Big Dom and Little Boris wouldn't get it if you kept them in after school for a week writing it out fify thousand times......

Thanks (2)
Replying to paulfieldcrest:
By Ian McTernan CTA
05th Feb 2020 16:31

But Paul, blaming Boris and Dom for this is so far wide of the mark it makes you sound like a Corbynite.

HMRC and the Treasury come up with these things. The politician said £9,500 for the individual so HMRC only do it for the individual, creating yet more complexity but trying to scrape every penny off employers that they can.

HMRC and the Treasury don't care how complicated they make things.

Thanks (1)
Replying to Ian McTernan CTA:
By paulfieldcrest
05th Feb 2020 17:12

No, definitely not a Corbinyte - he's the reason we don't have an Opposition any more (which is a Very Bad Thing).

But isn't the Government ultimately responsible for implementing the recommendations of the Treasury and HMRC?

And isn't this Government led by an unelected bureaucrat puppeteer with one hand working Little Bo and the other Little Saj - both of them dancing to his merry little tune?

Sorry, I've become somewhat cynical over the course of the last three or four years. Hard to put my finger on why this is - probably old age creeeping up on me.

Thanks (1)
By k743snx
05th Feb 2020 16:31

Some people have short memories.

Budget Day had been held in early spring for years. Then as recently as 2018 some bright spark swapped the Spring Budget and the Autumn statement.

I grant the December election may have caused a few hiccups, but we seemed to manage in the past.

Thanks (1)
By Ian McTernan CTA
05th Feb 2020 16:34

So just to make it clear: if we continue to pay people above the LEL and below the £8,788 then they will get a year's state pension entitlement without incurring ERNIC. Correct?

Only HMRC could think that not raising the employer threshold at the same time was a good idea...

Thanks (0)
By AndrewV12
17th Feb 2020 12:25

Extract above
'The Employment Allowance will be withdrawn for employers (and connected employers) who have an employer national insurance liability of £100,000 or more for 2019/20.'

This is an important allowance, even though the Government quote it a lot, there are many bushiness who are excluded from it (what they don't tell you).

Thanks (0)
By Gone Sailing
18th Mar 2020 18:48

I was a bit surprised, when they were talking about raising Class 4 rate last year that they put the threshold up in line with the PT not the ST. They could have pocketed a few extra bob there.

Thanks (0)