New for 2021-22
There are a number of changes to the rules and rates that will affect payroll for 2021-22 and this guide provides details of some of them. We would recommend that you read the latest editions of HMRC Employer Bulletin (www.hmrc.gov.uk/payerti/forms-updates/employer-bulletin/index.htm ) which cover many of these items in greater detail. Please also see the GOV.UK document Rates and thresholds for employers 2021-22 which gives details of National Insurance rates and thresholds, minimum wage rates, etc.
Please note that all rules / rates are subject to any potential changes in the budget of March 2021.
- Employee Tax codes for 2021-22
- Income tax rates and thresholds in England, Northern Ireland, Wales and Scotland
- National Insurance bands and rates
- Auto Enrolment Pensions – Qualifying Earnings thresholds
- New rates of Statutory Pay
- National Minimum wage increases
- Student Loan rates and thresholds – Plan 1, Plan 2, Postgraduate Loans and the new Plan 4 for Scotland.
- National Insurance Holiday for employers that hire armed forces veterans
1. Employee Tax codes for 2021-22
HMRC have announced a general ‘uplift’ of tax codes in line with increases to the personal allowance (which was £12,500 in 2020-21). For tax year 2021-22 the personal allowance rises to £12,570, so tax codes ending in the letter ‘L‘ (such as 1250L) will be uplifted by ‘7” (e.g. to 1257L). The ‘standard/emergency’ tax code for 2021-22 is 1257L. (S1257L in Scotland, C1257L in Wales).
(There are also uplifts for tax codes ending in the letter M, which increase by 8, and letter ‘N’ which increase by 6).
Payroll Manager applies these tax code uplifts automatically when you go from one tax year to the next.
The HMRC help sheet www.hmrc.gov.uk/helpsheets/p9x.pdf gives further guidance on Tax Codes.
2. Income tax rates and thresholds for 2021-22
The table below shows the income tax rates and thresholds in use for England, Wales and Northern Ireland, and also those for Scotland, which uses a different system of rates.
|Income tax rates for England, Wales & Northern Ireland (annual earnings)|
|Basic rate||20%||On earnings £12,570 to £50,270|
|Higher rate||40%||On earnings £50,271 to £150,000|
|Additional rate||45%||On earnings above £150,000|
|(Rates assume a personal allowance of £12,570)|
|Income tax rates for Scotland (annual earnings)|
|Scottish Starter rate||19%||On earnings £12,570 to £14,667|
|Scottish Basic rate||20%||On earnings £14,668 to £25,296|
|Scottish Intermediate rate||21%||On earnings £25,297 to £43,662|
|Scottish Higher rate||41%||On earnings £43,663 to £150,000|
|Scottish Top rate||46%||On earnings above £150,000|
|(Rates assume a personal allowance of £12,570)|
Payroll Manager will automatically apply the correct rate/ threshold for income tax according to the tax code assigned to each employee.
3. National Insurance Contributions
The table below shows the National Insurance bands for 2021-22. Note that the ‘Lower Earnings Limit’ for 2021-22 is unchanged from 2020-21. The ‘Primary Threshold’ (the point at which employee National Insurance becomes due) has risen by £1 per week / £5 per month from 2020-21.
|Lower Earnings Limit (LEL)||Primary Threshold (PT) for Employee NIC||Secondary Threshold (ST) – for Employer NIC||Upper Earnings Limited (UEL)|
Payroll Manager will automatically apply these changes
4. Auto Enrolment Pensions – Qualifying Earnings thresholds
The 2021-22 Auto Enrolment Qualifying Earnings thresholds continue to be aligned to the National Insurance LEL and UEL (as above), so:
The Lower level of Qualifying Earnings remains at £120 per week / £520 per month for 2021-22
The Upper level of Qualifying Earnings increases to £967 per week / £4,189 per month for 2021-22
The minimum contribution percentages relating to Automatic Enrolment pension schemes have not changed for 2021-22, and remain at 5% for the employee and 3% for the employer.
Payroll Manager will automatically apply the new thresholds.
5. New rates of Statutory Pay
- The rate for Statutory Sick Pay (SSP) is £96.35 per week from 6 April 2021 (the weekly rate was £95.85 in 2020-21).
- The standard rate of Statutory Maternity, Paternity, Adoption Pay, Shared Parental Pay, and Parental Bereavement Pay (SMP, SPP, SAP, ShPP, SPBP)) is £151.97 from April 2020 (the weekly rate was £151.20 in 2020-21).
- The Lower Earnings Limit (LEL) for 2021-22 (i.e. the minimum amount an employee must earn in order to qualify for SSP, SMP etc) is £120.00 (which is the same as for 2020-21)
See the HMRC publication Rates and Thresholds for 2021-22 for more information.
Payroll Manager will automatically apply the correct rate of statutory pay.
6. National Minimum Wage increases.
The National Minimum wage rates are increasing from April 2021. The new hourly rates, applicable from 1 April 2021 are as follows:
- Aged 23 and above (national living wage rate) – £8.91
- Aged 21 to 22 inclusive – £8.36
- Aged 18 to 20 inclusive – £6.56
- Aged under 18 (but above compulsary school leaving age) – £4.62
- Apprentices aged under 19 – £4.30
- Apprentices aged 19 and over, but within the first year of their apprenticeship – £4.30
Payroll Manager cannot automatically check that you are paying the minimum required amounts, so if you have employees that are subject to these minimums you should ensure that the correct rate is being paid from April 2021 onwards. More information can be found on the link below:
7. Student loan rates and thresholds – Plan 1, Plan 2, Postgraduate Loans and the new Plan 4 for Scotland.
From 6 April 2021 the threshold at which borrowers repay Student Loan Plan Type 01 loans will increase from £19,390 to £19,895 per year – Type 01 loans are those issued to students before 2012. The rate remains at 9%.
The threshold for Student Loan Plan Type 02 loans (issued after 2012) will increase from £26,575 to £27,295 per year. The rate remains at 9%.
The threshold for Postgraduate Loans (PGL), remains at £21,000 per year, and the rate remains at 6%.
A new Student Loan Plan Type 04 comes into effect in Scotland from April 2021. The annual threshold will be £25,000 with deductions being made at a rate of 9%.
Payroll Manager will automatically apply the correct student loan repayment threshold and will include the correct plan type in the RTI details sent to HMRC.
Please see our guide on Student Loan Deductions for details of how to process student loan repayments in the software.
For more information please refer to the HMRC guide on Repaying your student loan
8. National Insurance Holiday for employers that hire armed forces veterans
In the spring budget of 2020, the Chancellor announced the introduction of a National Insurance holiday for employers that hire former members of the UK regular armed forces. The holiday will exempt employers from any National Insurance contributions liability on a veteran’s salary up to the Upper Secondary Threshold (UST) in their first year of civilian employment (the employee will still be liable for National Insurance contributions)
This relief will be available from April 2021. Employers will be able to claim this relief for 12 months starting from the first day of the veterans first civilian employment after leaving Her Majesty’s armed forces. Subsequent employers will be able to claim this relief during this 12 month period. See National Insurance contributions relief for employers who hire armed forces veterans for more details.
GOV.UK – Rates and Thresholds for 2021-22