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 2020/21, these have been laid in draft form.
As allowed by both the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, this gives 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.
Great Britain and Northern Ireland?
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, I can say with confidence that these 2020 Regulations will apply UK-wide.
There are a couple of interesting points:
- The Regulations came with the announcement that they make good on the Conservative Manifesto’s promise to increase the threshold at which the employee starts to pay Contributions (to £9,500 per annum). What the Regulations also do is confirm that the point at which the employee starts to pay will diverge from the point at which the employers starts to pay
- The Upper Earnings Limit stays at £50,000 per annum, ‘as announced at Budget 2018’ says the press release. However, the announcement at Budget 2018 was that the Higher Rate Threshold would stay at £50,000 for 2020/21. This is the value of the Personal Allowance (£12,500) and the Basic rate Threshold (£37,500). This is in legislation and an indication that these will not change in the March 2020 Budget
These are unchanged from 2019/20.
|Lower Earnings Limit (LEL)||19/20||118||236||472||512||6,136|
|Primary Threshold (PT)||19/20||166||332||664||719||8,632|
|Secondary Threshold (ST)||19/20||166||332||664||719||8,632|
|Upper Earnings Limit (UEL)||19/20||962||1,924||3,847||4,167||50,000|
The Upper Secondary Threshold (UST) and the Apprentice Upper Secondary Threshold (AUST) remain aligned with the value of the Upper Earnings Limit in 2020/21.
Points to note from the above
- The weekly LEL is £120. This is so important for things like entitlement to sickness and parental Statutory Payments
- The Primary Threshold and Secondary Threshold have diverged after a number of years of being aligned. This means that the point at which the employee starts to pay National Insurance is not the same at which the employer starts to pay
- In line with the above statement, the annual UEL is £50,000. This value is also the Upper Profits Limit for Class 4 NICs. Both of these thresholds are aligned to the Higher Rate threshold for Income Tax and have been since 2009 (as announced at Budget 2007). Which to me is a strong indication that this will not change in 2020/21 (i.e. the Basic Rate threshold will stay as £37,500 and the Personal Allowance as £12,500 – indeed, legislation says that they will not change in 2020/21)
For the self-employed, in 2020/21:
- The small profits thresholds increases from £6,365 to £6,475 per annum and
- The weekly rate increases from £3.00 to £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. Individual 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 2020/21:
- The weekly rate increases from £15.00 to £15.30
Also for the self-employed where profits are higher. In 2020/21:
- The Lower Profits Limit threshold increases from £8,632 to £9,500 per annum
- The Upper Profits Limit remains at £50,000 per annum
There is no change to the percentage rate above the threshold which remains at 9%.
Whilst the above information has been provided to software developers, note that the legislation is draft at the moment and has not been made a UK Statutory Instrument.