National Insurance Contributions threshold to increase in April 2020
The government have announced the new National Insurance Contributions (NIC) limits and thresholds. From 6 April 2020, the NIC threshold is set to increase for both employed and self-employed individuals.
As an employee working for a company, your earnings are subject to Class 1 NIC. Currently, you pay no Class 1 NIC if your earnings are below £8,632 pa (also known as the primary threshold limit). If your earnings are between £8,632 – £50,000 (the upper earnings limit) then you pay Class 1 NIC at 12%. Any amounts in excess of that are subject to Class 1 NIC at 2%.
The increase will be in the primary threshold limit, which will rise by approximately 10% to £9,500. The upper earnings limit will remain unchanged but all other thresholds will rise with inflation.
For self-employed individuals, any profits earned are subject to Class 4 NIC. In addition, they are also subject to a weekly Class 2 NIC which is collected via an individual’s self-assessment tax return.
Whilst the weekly amount of Class 2 NIC payable has gone up from £3 per week to £3.05 per week, the small profits threshold (i.e the threshold before any Class 2 NIC is payable) has increase from £6,365 to £6,475.
Currently, if your profits are below £8,632 (the lower profits limit) then no Class 4 NIC is payable. If your profits are between £8,632 and £50,000 (upper profits limit) then Class 4 NIC is payable at 9%. Any amounts in excess of the upper profits limit is subject to Class 4 NIC at 2%
As with Class 1 NIC, the small profits limit has also risen to £9,500 and the upper profits limit is frozen. The above information is summarised in the tables below:
|Primary Threshold Limit (annual)||£8,362||£9,500|
|Upper Earnings Limit (annual)||£50,000||£50,000|
|Small Profits Threshold (annual)||£6,365||£6,475|
|Lower Profits Limit (annual)||£8,632||£9,500|
|Upper Profits Limit (annual)||£50,000||£50,000|
As a result of the changes, employees will save approximately £104 per annum on Class 1 NIC, whereas self-employed individuals would save approximately £78 in Class 4 NIC.
In addition, if individuals no longer meet the NIC limit as a result of the increased thresholds, then for the 2020/21 tax year they will receive a credit towards their state pension.
If you would like more information regarding this, please contact our tax team on 0191 285 0321.