Tax Advice

Tax and NIC thresholds for 2021/22

01 Feb 2021

If you’re a business owner, you’ve probably been eagerly awaiting news from HMRC about the 2021/22 thresholds for income tax, statutory payments, and national insurance contributions (NIC). They’re just a few of the things that got disrupted during what was an extraordinary 2020, and it’s caused some inconvenience because the thresholds and rates for NIC requirements would usually have been released by the Chancellor as part of the Autumn Statement or the Autumn Budget. 

Because of the COVID-19 pandemic, the 2020 Autumn Statement never happened. It’s likely we’ll to have to wait until March 2021 for the Budget to find out for certain how rates will be affected, but the financial secretary to the treasury, Jesse Norman, did deliver a ministerial statement concerning increases in the NIC thresholds back in December last year:

“In line with the approach set out in the Spending Review document on 25 November (CP 330), the Government will use the September Consumer Price Index (CPI) figure (0.5%) as the basis for setting all National Insurance limits and thresholds, and the rates of Class 2 and Class 3 National Insurance contributions, for 2021-22. A table of these 2021-22 National Insurance rates and thresholds will be placed in the Libraries of the House.”

Class 1 2021 – 2022 

Class 1 NIC: Employee and Employers (£ per week)


2020-21

2021-22

Weekly lower earnings limit

£120

£120

Weekly primary threshold

£183

£184

Weekly secondary threshold

£169

£170

Upper earnings limit

£962

£967

Upper secondary threshold for under 21s

£962

£967

Apprentice upper secondary threshold for under 25s

£962

£967



Class 2 2021 – 2022 

Class 2 NIC: Self-employed (£ per week)


2020-21

2021-22

Small profits threshold (£ per year)

£6,475

£6,515

Class 2 contribution rates

2020-21

2021-22

Annual profits (£ per year)

£ per week

£ per week

Below small profits threshold

£3.05 voluntary

£3.05 voluntary

Above small profits threshold

£3.05

£3.05


Applicable for the self-employed during 2021/22:

  • The small profits threshold has increased from £6,475 to £6,515

  • The weekly rate stays at £3.05 per week


Class 3 2021 – 2022 

This is the class of NIC that can be used to fill in any gaps that may exist in a person’s NIC record. You can check your personal tax account for gaps, and you may need to pay voluntary contributions in order to fill them. For 2021/22 the weekly rate will increase from £15.30 to £15.40.

Class 3 NIC: Voluntary Contributions (£ per week)


2020-21

2021-22

Voluntary contributions

£15.30

£15.40



Class 4 2021 – 2022 

Where self-employed profits work out higher than the lower profits limit (LPL) class 4 NIC will be payable. These are the figures for 2021/22:

  • The LPL has increased from £9,500 to £9,568

  • The upper profits limit has increased from £50,000 to £50,270

Class 4 NIC: Self-employed (£ per week)


2020-21

2021-22

Lower profits limit

£9,500

£9,568

Upper profits limit

£50,000

£50,270


Read More: How To Pay Self-assessment Tax & Deadlines

Income tax implications

The class 1 upper end limit has increased by £270 from £50,000 to £50,270. The upper end limit has been aligned to the income tax higher rate threshold since 2007, so English, Northern Irish, and Welsh taxpayers will have a higher rate threshold of £50,270.


The personal allowance and basic rate

The 2020 Spending Review specified an increase in the 2021/22 income tax personal allowance and higher rate threshold that lines up with September’s consumer price index figure of 0.5%. So, the personal allowance increases from £12,500 to £12,570, and the basic rate threshold will be £37,700 in 2021/22.


Pensions implications

The class 1 lower end limit stays unchanged, so that will be £120 per week. That works well for the average weekly earnings threshold for statutory payments. It’s also reasonable to assume that the lower qualifying earnings band related to workplace pensions will not change either.


State pensions and benefits

The secretary of state for work and pensions, issued a statement back in November, and these were the main implications for state pensions and benefits: 

  • Basic and new state pensions will increase by 2.5% starting on 12 April this year. 

  • Other state benefits will increase according to the consumer price index rate of inflation, which is 0.5%.


Statutory Sick Pay (SSP)

The weekly rate for statutory sick pay will increase from £95.85 to £96.35, and that will apply to average weekly earnings equal to or above the lower end limit. The new rate of statutory sick pay must be paid from 6 April onwards.


Unrounded daily rates

No. 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







 

Read More: Paying Wages & Sick Pay for Employees During Covid-19

Parental Pay

Remember, even though statutory sick pay must be paid from the start of the new tax year, other statutory payments start on the first Sunday in April – which falls on the 4th in 2021. The parental payments weekly rate rises from £151.20 to £151.97.

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Chris Barnard

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Head Accountant in Brighton

0127380 8000

About the author

Hello there! My name is Chris.

Since graduating with a business degree over 12 years ago I have been helping businesses grow, by sorting their finances and providing great advice. In 2014 I became a Chartered Certified accountant and have worked in various sized accountancy firms, from traditional top 20, to up and coming online accountants.

This resulted in 2015 being recognised in Accountancy Age's 35 under 35 and a year later in 2016 awarded the New Practitioner of Year, at the British Accountancy awards.

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