With the 2020 Budget still five weeks away it’s been a tense few weeks for payroll software developers and tax agents who are trying to prepare employers for the new tax year. Fortunately, the NIC rates and thresholds for 2020/21 have now been announced along with key details for other payroll deductions.

If we’d had an early February budget, the timetable for revising software would’ve been tight, but just about deliverable. However, a Budget on the 11 March presents a problem.

February deadline

Some payrolls that pay on 6 April are run at the end of February. Without an announcement of the national insurance rates and thresholds, it wouldn’t be possible to pay people correctly on that first payday for 2020/21. The national insurance liability is not calculated cumulatively unless you are a director.

So it was a relief when an email arrived on 31 January 2020 announcing the 2020/21 national insurance thresholds.

New NIC thresholds

It is now clear that employees will benefit from a primary class 1 threshold of £9,500 (as promised in the Conservative party manifesto) but employers will start paying NIC sooner at £8,788 (a small increase in last year’s threshold of £8,632).

The primary and secondary thresholds for class 1 NIC have been aligned since 2017, which was a recommendation of the Office of Tax Simplification. Now we are back to more complexity as the two NIC thresholds split apart again.

The NIC thresholds for the most common pay frequencies are shown below:

Pay Frequency	LEL	PT	ST	UEL	AUST	UST
Weekly	£120	£183	£169	£962	£962	£962
Fortnightly	£240	£366	£338	£1,924	£1,924	£1,924
Four-weekly	£480	£731	£676	£3,847	£3,847	£3,847
Monthly	£520	£792	£732	£4,167	£4,167	£4,167
Yearly	£6,240	£9,500	£8,788	£50,000	£50,000	£50,000

There are no changes to NI table letters or percentages, as there was a commitment during the general election not to raise the rates of national insurance for the life of this parliament.
 

Income tax thresholds

The income tax bands have not been announced. However, as the upper earnings limit for NIC has not increased, I presume this means that the 40% income tax threshold remains at this level too.

The expectation is that the personal allowance will remain at £12,500 as the announcement in Budget 2018 was to cover two years. The Conservatives also committed not to increase the rate of income tax during this parliament.

Termination payments

The introduction of Class 1A (employer only) NI on termination payments over £30,000 from 6 April 2020 is not handled via a table letter. The payment of such a termination award requires the employer to complete a manual calculation and enter that in the Full Payment Submission (FPS).

Employment Allowance

The Employment Allowance will be withdrawn for employers (and connected employers) who have an employer national insurance liability of £100,000 or more for 2019/20.

No action is required to end claims for the employment allowance, as all claims will fall away at the end of this tax year.

Small employers who are still eligible to claim will have to answer numerous additional questions on the Employer Payment Summary (EPS). Restricting the allowance in this way has turned it into de minimis state aid, so government have to have a record to prove that the claimants have sufficient headroom in their sectoral de minimis state aid threshold over the two preceding years ahead of the year of claim to allow for the £3,000 of employment allowance.

As the state aid thresholds are quoted in euros (we have adopted the EU state aid regulations into UK law) employers have to convert any de minimis state aid received in sterling into euros using the exchange rate for March that HMRC will publish here.

Auto enrolment

The final piece in the national insurance jigsaw is in respect to auto enrolment thresholds as the qualifying earnings for the and lower bands of pension contributions are currently aligned to the upper and lower earnings NIC limits. It is to be hoped that DWP will be able to confirm these thresholds quickly.

Statutory payments

We already have the statutory payment values for 2020/21:

SMP, SAP, SPP, ShPP, SPBP*	£151.20 p.w. from 5.4.20
SSP	£95.85 p.w. from 6.4.20

Statutory parental bereavement pay will be introduced in Great Britain only (not Northern Ireland).
 

Student loan thresholds

Loan type	Threshold for payments	Rate of deduction
Plan 1	£19,390	9%
Plan 2	£26,575	9%
Postgraduate	£21,000 (no change)	6%

At Guilford Accounting I outsource all the payroll preparation for our clients to specialist payroll providers. If you are still handling your own payroll it may be time to consider outsourcing this to save you both time and the need to keep up to date with the changes in regulations.

Noel Guilford