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You can only make National Insurance deductions on earnings above the Lower Earnings Limit (LEL).  These rates are being frozen until April 2026.

Class 1 National Insurance Thresholds

2021 to 2022

 

LEL

 

£120 per week

£520 per month

£6,240 per year

 

Primary Threshold (PT)

£184 per week

£797 per month

£9,568 per year

 

Secondary Threshold (ST)

£170 per week

£737 per month

£8,840 per year

 

Upper Secondary Threshold (under 21) (UST)

£967 per week

£4,189 per month

£50,270 per year

 

Apprentice Upper Secondary Threshold (apprentice under 25) (AUST)

£967 per week

£4,189 per month

£50,270 per year

 

Upper Earnings Limit (UEL)

£967 per week

£4,189 per month

£50,270 per year

 

Employee (Ees) deductions at the following rates: -

NI Category Letter

Earnings at or above LEL up to and including PT

Earnings above the PT up to and including UEL

Balance of earnings above UEL

A

0%

12%

2%

B

0%

5.85%

2%

C

Nil

Nil

Nil

H (apprentice under 25)

0%

12%

2%

J

0%

2%

2%

M (under 21)

0%

12%

2%

Z (under 21 deferment)

0%

2%

2%

 

 

Employer (Ers) deductions at the following rates: -

NI Category Letter

Earnings at or above LEL up to and including PT

Earnings above the PT up to and including UEL

Balance of earnings above UEL

A

0%

13.8%

13.8%

B

0%

13.8%

13.8%

C

0%

13.8%

13.8%

H (apprentice under 25)

0%

0%

13.8%

J

0%

13.8%

13.8%

M (under 21)

0%

0%

13.8%

Z (under 21 deferment)

0%

0%

13.8%

 

For qualifying employers, the £4,000 Employer’s National Insurance allowance remains in force for the 2021-22 year.  This means that for you don’t pay Employer’s National Insurance for the first £4,000 in the tax year.

Unfortunately, this does not apply to companies such as those which only employ one director and no other staff.  There are also some other exceptions such as those that work in the public sector.  To check if you’re eligible please visit https://www.gov.uk/claim-employment-allowance.

If you have any benefits through work, such as healthcare or a company car, the employer must also pay Class 1A national insurance at 13.8% on those benefits.  To find out more and check if you need to pay this please visit https://www.gov.uk/employer-reporting-expenses-benefits/overview.

Director’s Salaries

If you are a director who has a salary and takes dividends, we would recommend that the optimal salary to take for the 2021-22 tax year is £735 per month.  This puts you in the LEL category (whereby you are deemed to have paid national insurance) but just below the PT category (whereby you actually pay national insurance).  This will use up most of your personal allowance, reduce your corporation tax liability by around £1,675 and will protect your state pension.

If we run your payroll for you and you are currently being paid our 2020-21 optimal recommendation of £730 per month then we will automatically adjust your salary in April 2021 to £735 per month.

 

To find out in more detail about 2021-22 rates and allowances please visit https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2021-to-2022.