2021/2022 Payroll Changes
Feb, 2021
This blog gives information on what we know about the thresholds for income tax, NIC, statutory payments and furlough.
2021 Budget
Due to the uncertainty caused by coronavirus the 2020 autumn budget was cancelled by Chancellor Rishi Sunak. This year’s Budget has now taken place on Wednesday 3rd March.
Furlough Extention
The scheme – which pays 80% of employees’ wages for the hours they cannot work will be extended until the end of September. Employers will be expected to pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September.
Tax thresholds, rates and codes
In the 2020 spending review, it stated that the government will increase the 2021/22 income tax personal allowance. This means employee personal allowance will increase from £12,500 to £12,570, and the higher rate threshold will be £37,700 for 2021/22.
The Scottish tax thresholds are calculated slightly differently. For the 2021/22 tax year, the government has chosen to continue to have five income tax rates and bands. This structure was introduced on 6th April 2018. The starter rate (19%), basic rate (20%), intermediate rate (21%), higher rate (41%) and top rate (46%).
| PAYE tax rates and thresholds | England and Northern Ireland 2021 to 2022 |
| Employee 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 tax rates and thresholds | Scotland 2021 to 2022 |
| Employee personal allowance | £242 per week |
| £1,048 per month | |
| £12,570 per year | |
| Scottish starter tax rate | 19% on annual earnings above the PAYE tax threshold and up to £2,097 |
| Scottish basic tax rate | 20% on annual earnings from £2,098 to £12,726 |
| Scottish intermediate tax rate | 21% on annual earnings from £12,727 to £31,092 |
| Scottish higher tax rate | 41% on annual earnings from £31,093 to £150,000 |
| Scottish top tax rate | 46% on annual earnings above £150,000 |
National Minimum Wage
The National Minimum Wage is the minimum pay per hour almost all workers are entitled to by law and new rates in the table below will apply from 1st April 2021. The NLW will increase by 2.2% to £8.91 and will become available to people aged 23 and above, down from the current age of 25.
| Category of worker | 2020/21 Tax year Hourly rate | 2021/22 Tax year Hourly rate |
| 2020/2021 Aged 25 and above | £8.72 | £8.91 |
| 2021/22 Aged 23 and above | ||
| (National living wage rate) | ||
| Aged 21 to 22 inclusive | £8.20 | £8.36 |
| Aged 18 to 20 inclusive | £6.45 | £6.56 |
| Aged under 18 (but above compulsory school leaving age) | £4.55 | £4.62 |
| Apprentices aged under 19 | £4.15 | £4.30 |
| Apprentices aged 19 and over, but in the first year of their apprenticeship | £4.15 | £4.30 |
Class 1 National Insurance thresholds
Employees are responsible to pay class 1 NICs on their earnings between the primary threshold and the upper earnings limit which is currently £962 per week. It’s been confirmed that this will increase to £967 per week.
Employees also accrue entitlements to contributory benefits between the lower earnings limit (£120 per week) and the primary threshold. Between these levels, a zero rate of NICs is charged and notional contributions are deemed to have been collected.
Following is a table of national insurance thresholds and limits for employees and employers was published by HMRC. The limits for employers and employees are as follows:
| Class 1 National Insurance thresholds | 2020 to 2021 | 2021 to 2022 |
| Lower earnings limit | £120 per week | £120 per week |
| £520 per month | £520 per month | |
| £6,240 per year | £6,240 per year | |
| Primary threshold | £183 per week | £184 per week |
| £792 per month | £797 per month | |
| £9,500 per year | £9,568 per year | |
| Secondary threshold | £169 per week | £170 per week |
| £732 per month | £737 per month | |
| £8,788 per year | £8,840 per year | |
| Upper secondary threshold (under 21) | £962 per week | £967 per week |
| £4,167 per month | £4,189 per month | |
| £50,000 per year | £50,270 per year | |
| Apprentice upper secondary threshold (apprentice under 25) | £962 per week | £967 per week |
| £4,167 per month | £4,189 per month | |
| £50,000 per year | £50,270 per year | |
| Upper earnings limit | £962 per week | £967 per week |
| £4,167 per month | £4,189 per month | |
| £50,000 per year | £50,270 per year |
Changes to off-payroll working for intermediaries and contractors – (IR35)
The changes to the off-payroll rules were due to come into effect on 6th April 2020 but this was delayed until April 2021 as part of the government’s Covid-19 economic response package.
Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working as an employee, but through their own limited company, pays broadly the same tax as someone employed directly.
The reforms, announced in the 2018 Budget, are designed to tackle non-compliance with the off-payroll working rules. The reforms make medium and large organisations in the private and third sectors responsible for determining the tax status of contractors and ensuring that the right employment taxes are paid. The reforms have previously been implemented in the public sector.
Detailed guidance on the reforms has been published by HMRC
Scottish Student Loans (SL4)
From April 2021 a student loan plan type 4 will be introduced to serve the increase in student loan earnings threshold within Scotland. The threshold will be set at £25,000 with a repayment percentage of 9% on any earnings above the threshold.
Qtac 2021/2022 will be updated to allow an employee to have a type 4 student loan set, with deductions being reported on the Full Payment Submission (FPS) to HMRC.
HMRC will be releasing an update to the starter checklist and SL1 documents, however, no amendments will be required to the P45 or P60 documents.
Statutory Maternity, Paternity, Adoption, Shared Parental and Parental Bereavement Pay
The government has announced changes to statutory maternity, paternity, adoption, parental bereavement and shared parental payments from April 2021.
The rates for 2021/22 for statutory maternity, paternity, adoption, parental bereavement and shared parental pay is set to increase by £0.77 from £151.20 to £151.97 per week. (Or 90% of their average weekly earnings if this figure is less than the statutory rate).
Statutory Sick Pay (SSP)
Statutory sick pay (SSP) is also set to increase from £95.85 to £96.35 per week.
Student Loan and Postgraduate Loan Recovery
The rates for 2021/22 for student loans are also set to increase. Plan 1 raising by £505 per year and Plan 2 is set to increase by £720 per year.
Discontinuation of Automated Reports v1
In 2015 a new reporting feature was added to the Qtac product. Automated Reports v2 brought new functionality, improved error reporting and better stability to the already popular Automated Reports functionality.
From April 2021, Automated Reports v1 will no longer be available and we encourage users to migrate their reporting to version 2 before the new tax year.
Information on how to configure Automated Reports v2 can be found here
For more information on the rates and thresholds for the 2021/2022 tax year click here.