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.
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.
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
|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
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
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.
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
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.
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
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:
|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
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Ian Holloway is a highly respected payroll practitioner, writer, advisor and trainer. He has worked in the payroll profession for over 30 years and is now Payroll Consultant at i-Realise, an independent change management business operating in the payroll space. Ian has hands-on experience processing payrolls from all sectors, large and small....