Changes to National Insurance contributions (NICs) limits and thresholds took effect from 6 April 2020. The Treasury says the ‘typical’ employee will pay around £104 less in NICs in 2020/21.
Before the coronavirus crisis, there were plans to raise the NICs threshold to £12,500. What will happen now is more uncertain.
For employees, payment of NICs now starts when salary tips £9,500 pa (2020/21), rather than £8,632 pa (2019/20). The self-employed benefit, with the threshold for Class 4 NICs mirroring this change, and the small profits threshold for Class 2 NICs rising from £6,365 (2019/20) to £6,475 (2020/21).
For higher earners, employees and self-employed alike, the freezing of the upper earnings/profits limit at £50,000 gives access to a 2% contribution rate on a bigger slice of earnings.
But for employers, the story is different: there is only an inflationary increase to the secondary threshold. Employers now contribute when salary exceeds £8,788 pa (2020/21), rather than £8,632 (2019/20).
Directors in family companies must take account of the cost of both employer and employee NICs. In announcing support for the self-employed in the current crisis, the Chancellor signalled that the contribution system for the self-employed is likely to be fundamentally reformed in the medium term.
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