From 6 April 2021 , new thresholds apply for National Insurance purposes in the new tax year.
Employees and Employers
Employees pay Class 1 (primary) National Insurance Contributions (NICs) on their earnings, while Class 1 (secondary) contributions are payable by employers.
Employees come within the scope of Class 1 NICs once their earnings reach the lower earnings limit. This remains at £120 per week for 2021/22 (£520 per month; £6,240 per year). However, contributions are paid at a notional zero rate between the lower earnings limit and the primary threshold. While this does not cost the employee anything, it ensures that the year is a qualifying year for state pension and contributory benefit purposes.
Once an employee’s earnings reach the primary threshold, they must start paying employee Class 1 NICs. For 2021/22, the primary threshold is set at £184 per week (£797 per month; £9,568 a year). Contributions are payable on earnings between the primary threshold and the upper earnings limit at the main primary rate of 12%. For 2021/22, the upper earnings limit is set at £967 per week (£4,189 per month; £50,270 per year). Contributions on earnings above the upper earnings limit are payable at the additional rate of 2%.
Employer contributions are payable at the secondary rate of 13.8% on all earnings above the secondary threshold. There are three thresholds. The main threshold is the secondary threshold, which applies to employees aged 21 and over who are not apprentices under the age of 25. As was the case last year, the secondary threshold and the primary threshold are not aligned – for 2021/22 the secondary threshold is set at £170 per week (£737 per month; £8,840 per year).
Different secondary thresholds apply to employees under the age of 21 and apprentices under the age of 25.Employees and apprentices in these categories pay employee contributions on earnings above the primary threshold, as for other employees.
The rate of employer only Class 1A contributions (on benefits in kind and taxable termination payments and sporting testimonials) and Class 1B contributions (on items included within a PAYE Settlement Agreement) remains at 13.8% for 2021/22.
Self-employed
The self-employed pay two classes of contributions – Class 2 and Class 4 – if their profits exceed the relevant thresholds.
Class 2 contributions are payable at £3.05 per week for 2021/22 (unchanged from 2020/21) on earnings over the small profits threshold of £6,515. Where earnings are below the small profits threshold, Class 2 contributions can be paid voluntarily to maintain the individual’s contribution record.
Class 4 contributions are payable at the main rate of 9% on profits between the lower profits limit of £9,568 and the upper profits limit of £50,270, with at the additional rate of 2% on earnings in excess of the upper profits threshold.
Voluntary contributions
Individuals can make Class 3 voluntary contributions to maintain their contributions record. These are payable at a weekly rate of £15.40. Where the option is available to pay Class 2 voluntarily (such as for individuals working abroad), this is a much cheaper option.
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
