Employment Tax

Overview of NIC Classes, rates and thresholds

Produced by Tolley
  • 29 Oct 2021 11:00

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Overview of NIC Classes, rates and thresholds
  • Class 1 NIC
  • Calculation
  • Health and Social Care Levy and temporary uplift in NIC rates
  • More than one employment
  • Class 1A NIC
  • Class 1B NIC
  • Contracting out

Overview of NIC Classes, rates and thresholds

There are three classes of NIC relevant to employment income: Class 1, Class 1A and Class 1B.

Class 1 NIC

A primary Class 1 liability arises on employees unless they are:

  1. under the age of 16 when the payment is made

  2. employees of certain overseas organisations

  3. over the age of state retirement age (see the Retirement age guidance note)

A secondary liability to Class 1 NIC arises on the employer even in the case of employees over retirement age as the employer’s liability continues even though the employee ceases to be liable to NIC at this point.

Class 1 NIC is payable on an employee’s earnings. There are two types of Class 1 liability: primary Class 1 NIC liability payable by the employee (sometimes known as ‘employee’s contributions’) and secondary Class 1 NIC liability payable by the employer (sometimes known as ‘employer’s contributions’).

Certain payments are disregarded for the purposes of Class 1 NIC. These include:

  1. the reimbursement of expenses

  2. payments in kind

  3. the provision of services or other facilities

  4. board and lodging provided to employees

But there may still be an NIC charge in respect of such items ― see Classes 1A and 1B below.


The calculation of Class 1 NIC is worked out by reference to earnings periods (see the NIC earnings periods guidance note). For each earnings period, the employer has to compare the level of earnings against a number of thresholds and limits. The Government had set out a range of proposed tax changes in its 2019 election manifesto to increase the NIC threshold to £9,500 from April 2020 which was a much more significant increase than in previous years. See the Tax planning considerations prior to Budget 2020 news article.

The Chancellor confirmed the planned increase in the NIC threshold at Spring Budget 2020, and it went up from £8,632 to £9,500 from April 2020 (see Spring Budget 2020, p 88, para 2.172 and OOTLAR, p 30). However, subsequent rates

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