The 2020/21 tax year starts on 6 April 2021. From that date, new thresholds apply for National Insurance purposes.
Employees and Employers
Employees pay primary Class 1 National Insurance contributions on their earnings, while secondary Class 1 contributions are payable by their employees.
Employees come within the ambit of Class 1 National Insurance contributions once their earnings reach the lower earnings threshold. 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 National Insurance contributions. 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 for 2020/21, the second threshold and the primary threshold are not aligned – for 2021/22 the second threshold is set at £170 per week (£737 per month; £8,840 per year).
A higher secondary threshold applies to employees under the age of 21 and apprentices under the age of 25, and secondary contributions are only payable on earnings in excess of the threshold. For 2021/22 both thresholds are set at £967 per week (£4,189 per month; £50,270 per year) – the same as the upper earnings limit applying for employee contributions. 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.
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 in excess of the small profits threshold, set at £6,515 for 2021/22. Where earnings are below the small profits threshold, Class 2 contributions can be paid voluntarily to maintain the earner’s contribution record.
Class 4 contributions are payable at the main rate of 9% on profits between the lower profits limit, set at £9,568 for 2021/22, and the upper profits limit, set at £50,270 for 2021, and at the additional rate of 2% on earnings in excess of the upper profits threshold.
Individuals can make voluntary contributions Class 3 to maintain their contributions record. These are payable at a weekly rate of £15.40 for 2021/22. Where the option is available to pay Class 2 voluntarily, this is a much cheaper option.
Partner note: The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2021 (SI 2021/157).