In the UK, employees’ Income Tax and National Insurance Contributions (NICs) are automatically deducted through the Pay As You Earn (PAYE) system. HM Revenue and Customs employ this system to collect tax and NI directly from the employers’ payroll. Payments to employees can be in the form of wages, salary, tips, bonuses or statutory sick or maternity. In today’s blog, we’ll explore PAYE threshold 2021-22 for income tax and NI, Emergency Tax Codes, Class 1 NI Rates, and National Minimum Wage.
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PAYE Thresholds 2021-22 for Income Tax
As an employer, the deductions you are going to make from your employees’ wages will be based on:
- their tax codes
- how much their taxable income is over the personal allowance (£12,570)
Here is the table showing PAYE thresholds 2021-22 for taxes in England and Northern Ireland:
| PAYE tax rates and thresholds | 2021 to 2022 |
|---|---|
| Personal allowance | £242 per week £1,048 per month £12,570 per year |
| English and Northern Irish (basic tax rate) | 20% on annual earnings above the PAYE tax threshold and up to £37,700 |
| English and Northern Irish (higher tax rate) | 40% on annual earnings from £37,701 to £150,000 |
| English and Northern Irish (additional tax rate) | 45% on annual earnings above £150,000 |
PAYE Thresholds 2021-22 for Class 1 NI
If your employees are earning over the lower-earning limit (£6,240 per year), you need to deduct Class 1 NI contributions through PAYE based on the following table:
| Class 1 National Insurance thresholds | 2021 to 2022 |
|---|---|
| Lower earnings limit | £120 per week £520 per month £6,240 per year |
| Primary | £184 per week £797 per month £9,568 per year |
| Secondary | £170 per week £737 per month £8,840 per year |
| Upper secondary (under 21) | £967 per week £4,189 per month £50,270 per year |
| Apprentice upper secondary (apprentice under 25) | £967 per week £4,189 per month £50,270 per year |
| Upper earnings limit | £967 per week £4,189 per month £50,270 per year |
Emergency Tax Codes
Emergency tax codes are such codes on which you are liable to pay tax over your personal allowance. From 6 April 2021, these codes will be shown on your payslip as:
- 1257 X
- 1257 M1
- 1257 W1
These codes may also be assigned to you if you don’t provide your income details to HMRC in time after:
- you became an employee after being self-employed
- you started receiving a state pension or company benefits
- you got a new job
Change in circumstances means that you haven’t paid the correct amount of tax that you actually owe. Note that these codes are provided to you on a temporary basis. They will be updated once you or your employer provide HMRC with the correct details. Until then, you’ll be on the emergency code.
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Class 1 National Insurance Rates
Let’s see what are the primary and secondary contribution rates of Class 1 NI.
Employee (primary) Contribution Rates
You (employer) need to subtract primary contributions (employee’s NI) from the salary or wages of your employees via PAYE:
| The letter indicating NI category | Earnings at or above lower earnings limit up to and including primary threshold | Earnings above the primary threshold up to and including upper earnings limit | Balance of earnings above the upper earnings limit |
|---|---|---|---|
| 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 (secondary) Contribution Rates
The employer’s National Insurance (secondary contribution) will be paid to HMRC as per the following table:
| The letter indicating NI category | Earnings at or above lower earnings limit up to and including secondary threshold | Earnings above secondary threshold up to and including upper earnings limit, upper secondary threshold, apprentice upper secondary threshold | Balance of earnings above upper earnings limit, upper secondary threshold, apprentice upper secondary threshold |
|---|---|---|---|
| A | 0% | 13.80% | 13.80% |
| B | 0% | 13.80% | 13.80% |
| C | 0% | 13.80% | 13.80% |
| H (apprentice under 25) | 0% | 0% | 13.80% |
| J | 0% | 13.80% | 13.80% |
| M (under 21) | 0% | 0% | 13.80% |
| Z (under 21 – deferment) | 0% | 0% | 13.80% |
National Minimum Wages
According to UK law, there are certain National Minimum Wages as per the category of the workers. To check whether you are paying your employees as per the National Minimum Wage or if you need to pay them for past years, you can use this calculator. These rates are applicable onward from 1 April 2021:
| Category and Age of Worker | Hourly rate |
|---|---|
| Aged 23 and over | £8.91 |
| 21 to 22 | £8.36 |
| 18 to 20 | £6.56 |
| Below 18 (but above compulsory school leaving age) | £4.62 |
| Apprentices aged under 19 | £4.30 |
| Apprentices aged 19 and over, (in the first year of their apprenticeship) | £4.30 |
Quick Sum Up
This blog serves as the basic guideline about the PAYE thresholds 2021-22 for employers. PAYE is the system that HMRC uses to collect income tax and NI from the employees’ pay. Employers operate PAYE as part of their payroll to make deductions from the wages of employees. This blog also provides information on PAYE tax rates and thresholds for income tax and NI. Additionally, it also imparts the emergency tax codes and the National Minimum Wages.
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Disclaimer: This blog is intended for the basic information on PAYE thresholds & rates for 2021-22.
