Tax and NIC thresholds for 2021/22

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:

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:

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:

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