In the budget on 11 March the new Chancellor, Rishi Sunak, confirmed that the threshold for national insurance contributions (NICs) would increase from £8,424 to £9,500 for the 2020/21 tax year. Employed people who pay Class 1 contributions and self-employed people who pay Class 4 contributions will be included in this change. 
The government's plan to raise the NI contribution threshold was announced as part of the election campaign last November. The legislation for the change started its journey through Parliament at the end of January this year. The aim is to eventually increase the threshold to £12,500. 
 

How are National Insurance contributions calculated? 

Your NICs are based on your earned income and contribute to your entitlement to benefits, such as your pension and maternity allowance. 
 
Employers use each employee’s NI category letter when they run payroll to work out how much both need to contribute. For the 2020/21 tax year employees will pay Class 1 NICs
NI category letter 
£120 to £183 (£520 to £792 a month) 
£183.01 to £962 (£792.01 to £4,167 a month) 
Over £962 a week (£4,167 a month) 
0% 
12% 
2% 
0% 
5.85% 
2% 
N/A 
N/A 
N/A 
0% 
12% 
2% 
0% 
2% 
2% 
0% 
12% 
2% 
0% 
2% 
2% 
And, in addition, their employers will pay: 
NI category letter 
£120 to £169 (£520 to £732 a month) 
£169.01 to £962 (732.01 to £4,167 a month) 
Over £962 a week (£4,167 a month) 
0% 
13.8% 
13.8% 
0% 
13.8% 
13.8% 
0% 
13.8% 
13.8% 
0% 
0% 
13.8% 
0% 
13.8% 
13.8% 
0% 
0% 
13.8% 
0% 
0% 
13.8% 

NICs if you’re self-employed 

You will pay Class 2 and Class 4 NICs, depending on your profits if you’re self-employed. You will pay Class 2 NICs if your profits are £6,475 or more a year and Class 4 on profits of £9,501 or more a year. 
 
You will pay: 
Class 
Rate for tax year 2020 to 2021 
Class 2 
£3.05 a week 
Class 4 
9% on profits between £9,501 and £50,000 
2% on profits over £50,000 
If you’re employed and self-employed at the same time your employer will deduct your Class 1 NICs from your wages, and you might also have to pay Class 2 and Class 4 NICs for your self-employed work. HM Revenue and Customs (HMRC) will let you know how much is due after you’ve filed your Self Assessment tax return. 
 

NI for company directors 

Directors are treated as employees and will pay NICs on annual income from salary and bonuses over £9,500. The company will also pay employer’s NICs, even if they are the only director and employee. 
 
If the company runs payroll the way NICs are calculated will depend on whether payments are regular. NIC payments will be made when payroll is run, for example, weekly, monthly or quarterly. 
 

NI if you’re a landlord 

When you rent out property you will pay Class 2 NICs if your profits are £6,475 a year or more and it counts as running a business. This applies if: 
• being a landlord is your main job 
• you rent out more than one property 
• you’re buying new properties to rent out. 
 
If your profits are under £6,475, you can make voluntary Class 2 NICs, for example to make sure you get your full pension. 
 
If rental property is owned by a company, then the rental income will be handled in the same way as any other business income. 
 
If you would like any advice about your NICs just get in touch
Share this post:

Leave a comment: 

Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings