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Tax and NIC thresholds for 2021/22

Ian Holloway sets out what we know about the 2021/22 thresholds for income tax, NIC and statutory payments. The outstanding rates of tax and NIC will be confirmed in the March 2021 Budget.

8th Jan 2021
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In a normal year the Chancellor delivers an Autumn Statement or Autumn Budget which contains the rates and thresholds for national insurance contributions (NIC) for the next tax year, but 2020 was not a normal year.  

There was no Autumn Statement in 2020 but Jesse Norman, the financial secretary to the Treasury, delivered a written ministerial statement which confirmed the increases in the NIC thresholds in a paper deposited in the House of Commons Library on 16 December 2020.

Class 1

Software developers have since been provided with the following tables of class 1 national insurance thresholds for 2021/22:

Class 1 NIC thresholds 2021/22

£

2020/21

£

Lower earnings limit (LEL) 120 per week

520 per month

6,240 per year

120 per week

520 per month

6,240 per year

Primary threshold (PT) 184 per week

797 per month

9,568 per year

183 per week

792 per month

9,500 per year

Secondary threshold (ST) 170 per week
737 per month
8,840 per year
169 per week
732 per month
8,788 per year
Upper earnings limit (UEL)/ upper secondary threshold/ apprentice upper threshold 967 per week

4,189 per month

50,270 per year

962 per week

4,167 per month

50,000 per year

The upper secondary threshold (UST) and the apprentice upper secondary threshold (AUST) remain aligned with the value of the upper earnings limit in 2021/22.

Class 2

For the self-employed in 2021/22:

  • small profits threshold (SPT) increases from £6,475 to £6,515 per annum
  • weekly rate remains at £3.05 per week

Class 3

This is the class of NIC that can be used to fill in any gaps that may exist in a person’s NIC record.  Individuals should access their personal tax account to see whether any such gaps exist and whether they are eligible to pay voluntary contributions to fill them. For 2021/22 the weekly rate increases from £15.30 to £15.40.

Class 4

Where self-employed profits are higher that the lower profits limit (LPL) class 4NIC is payable. For 2021/22:

  • the LPL increases from £9,500 to £9,568 per annum
  • upper profits limit increases from £50,000 to £50,270 per annum

Other thresholds

Income tax

The class 1 UEL increases by £270 from £50,000 to £50,270 per annum. Since 2007 the UEL has been aligned to the income tax higher rate threshold (HRT). This would mean that for English, Northern Ireland and Welsh resident taxpayers, the HRT will be £50,270.

Personal allowance and basic rate

Buried in the 2020 Spending Review it was stated that the government will increase the 2021/22 income tax personal allowance and HRT in line with the September CPI figure of 0.5%. This means the personal allowance should increase from £12,500 to £12,570, and the basic rate threshold should be £37,700 (ie £50,270 - £12,570) for 2021/22.

Pensions

The class 1 LEL is unchanged at £120 per week. This is good news for the average weekly earnings threshold for statutory payments and implies that lower qualifying earnings band (QEB) for workplace pensions will also be unchanged.

State pensions and benefits

On 25 November 2020, Thérèse Coffey, secretary of state for work and pensions, made a written statement in containing the following headline announcements:

  • The basic and new state pensions will increase by 2.5% from 12 April 2021. Although there was no earnings growth, and therefore no legislative need to review the rates, the Social Security (Up-rating of Benefits) Act 2020 allowed Coffey to apply the 2.5% increment and keep the Conservative Party’s 2019 Manifesto commitment
  • Other state benefits are increased by the CPI rate of inflation of 0.5%.

On 8 December 2020 HMRC published the Benefit and pension rates 2021 to 2022, so now payroll and software developer professionals can plan with certainty. 

Statutory Sick Pay (SSP)

The weekly rate of SSP increases from £95.85 to £96.35, which applies to average weekly earnings (AWE) at or above the LEL:

Unrounded daily rates

Number of QDs in week

Number of days due

1 2 3 4 5 6 7
£   £ £ £ £ £ £ £
13.7643 7 13.77 27.53 41.30 55.06 68.83 82.59 96.35
16.0583 6 16.06 32.12 48.18 64.23 80.30 96.35  
19.2700 5 19.27 38.54 57.81 77.08 96.35    
24.0875 4 24.09 48.18 72.27 96.35      
32.1167 3 32.12 64.24 96.35        
48.1750 2 48.18 96.35          
96.3500 1 96.35            
The revised rate of SSP is payable from the first day of the new tax year (6 April 2021).

Parental Pay Payments

Whilst SSP is always payable from the first day of the new tax year, the other statutory payments apply from the week that commences the first Sunday in April (4 April 2021). The weekly rate for all parental payments increases from £151.20 to £151.97:

Rates effective from week starting on or after Sunday 4 April 2021
Earnings Threshold (LEL) £120.00
SMP / SAP weekly rate for first 6 weeks 90% AWE
Lesser of 90% AWE or the following Statutory rates:
  • SMP weekly rate for up to next 33 weeks
  • SAP weekly rate for up to next 33 weeks
  • SPP weekly rate
  • ShPP weekly rate
  • SPBP weekly rate
£151.97
Optional daily rate £21.71
Percentage of payment recoverable 92%
Percentage of payment recoverable (Small Employer’s Relief) 100%
NI compensation recoverable under Small Employer’s Relief 3%
Annual NICs threshold for Small Employer’s Relief £45,000

What to watch out for

The national insurance rates and thresholds for all classes of NIC will be contained in:

  • The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021

We also still need two pieces of legislation to make the statutory payment rates binding:

  • The Social Security Benefits Up-rating Order 2021 (for Great Britain), and
  • The Social Security Benefits Up-rating Order (Northern Ireland) 2021

Replies (3)

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avatar
By memyself-eye
09th Jan 2021 16:35

pensions will increase by 2.5% from 1st April 2020 - advised on 25November of that year?

Good to see the government keeping up!

Thanks (0)
By SteveHa
11th Jan 2021 08:55

LEL increases by 0.46%, whilst local authorities can increase council tax by between 3% and 5%.

Meanwhile, the UT increases by 0.54%, meaning that the less well off get a raw deal compared with higher rate taxpayers.

Nice to see where this Governments priorities lie.

Thanks (1)
Replying to SteveHa:
avatar
By Andrew Coombs
11th Jan 2021 10:30

They should keep the upper limit as is and only increase the lower limit.

Thanks (0)