National Insurance Rates and Thresholds 2021/22

For payroll professionals, an important piece of legislation is the annual Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations.  For tax year 2021/22, look out for these to be laid. 

As allowed by both the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, the 2021 Regulations will give effect to the annual re-rating of various National Insurance Contributions rates, limits and thresholds for the purposes of calculating Class 1, Class 2, Class 3 and Class 4 NICs liability (or voluntary payment) for the following tax year. 

As seen above, there are two pieces of National Insurance legislation, one applying in Great Britain and the other applying in Northern Ireland.  As a result, you would expect two sets of Regulations. 

What is interesting to me is that one set of Regulations updates both Great British and Northern Irish legislation courtesy of section 105 of the Deregulation Act 2015.  This sensible piece of legislation allows the passing of a single piece of legislation where a relatively small number of changes are made that are parallel anyway.

Therefore, the 2021 Regulations will apply UK-wide.  Plus, HMRC confirmed the below values to software developers on 22 December 2020.

There are a few interesting points:

• The Lower Earnings Limit (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 pensions will also be unchanged
• Budget 2011 announced that the other thresholds would largely increase by the value of the Consumer Prices Index (CPI) figure for the year to September 2020.  This was 0.5% and that formula has been applied for 2021/22
• 2020/21 made good on a Conservative Manifesto’s promise to increase the Primary Threshold to £9,500 per annum (when the employee starts to pay Contributions).  This meant that the point at which the employee starts to pay diverged from the point at which the employers starts to pay (the Secondary Threshold).  This continues in 2021/22
• The Upper Earnings Limit (UEL) increases by £270 from £50,000 to £50,270 per annum. Budget 2007 announced that the UEL would be aligned to the Income Tax Higher Rate Threshold (HRT).  Therefore, it would seem that for rUK and Welsh Taxpayers, the HRT will be £50,270.  So, if the Personal Allowance increases from £12,500 to £12,570 (as announced in The Sun), the Basic Rate Threshold will be £37,700 (i.e., £50,270 less £12,570)

The guidance to software developers on 22 December 2020 indicates that these are unchanged from 2020/21. However, there is the line at the bottom that says:

The UK Budget in March 2021 is a future fiscal event.

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.

For other relevant rates and thresholds, we have to look at the papers in the House of Commons Library, deposited on 16 December 2020:

For the self-employed, in 2021/22:

• The Small Profits Threshold (SPT) increases from £6,475 to £6,515 per annum and
• The weekly rate remains at £3.05 per week

This is the Class of National Insurance Contributions that can be used to fill in any National Insurance ‘gaps’ that may exist.  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.  In 2021/22:

• The weekly rate increases from £15.30 to £15.40

Also, for the self-employed where profits are higher.  In 2021/22:

• The Lower Profits Limit (LPL) threshold increases from £9,500 to £9,568 per annum
• The Upper Profits Limit increases from £50,000 to £50,270 per annum

Don’t forget to look for confirmation of the above in the Regulations which will be a UK Statutory Instrument called the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021.