Introduction to Income Tax and NICs National Insurance contributions
4.7.1 Lower Earnings Limit (LEL)
The Lower Earnings Limit (LEL) is prescribed in legislation each year and is statutorily defined as being the nearest whole pound to the weekly basic State Pension rate for a single person. The link was subsequently altered and the LEL has fallen below the basic State Pension in recent years.
Where earnings do not exceed the weekly LEL (or equivalent for other earnings periods), there is no NICs liability.
Although the LEL is set at a weekly amount, not all employees are paid weekly. The law prescribes exactly how to calculate the equivalent LEL for other earnings periods.
Purpose of LEL
No NICs are due on NICable earnings below the LEL and the contribution rate on earnings immediately above the LEL is 0%, so the LEL does not make any difference to the NICs actually due. However, it plays a key role in the NICs recording system because it is used as a basis for assessing an employee’s benefit and (ultimately) State Pension entitlements. Therefore, the payroll system must recognise and record earnings at and above the LEL in any pay period, even though no NICs may be due on them.
4.7.2 Primary Threshold (PT)
Before the 2011-12 tax year, NICs were payable by both the employee and the employer when earnings exceeded the Earnings Threshold (ET). This threshold was split into the Primary Threshold (PT) and the Secondary Threshold (ST) so that the levels at which employee NICs and employer NICs become payable can differ. For some tax years, the level of the PT was higher than the ST and for some tax years they were aligned. From tax year 2020-21, PT has been higher than ST. Unusually, the Government increased PT during the 2022-23 tax year, aligning it with the income tax Personal Allowance from 6 July 2022. The rate remains the same for 2023-24. The Primary Threshold (PT) falls between the Lower Earnings Limit (LEL) and the Upper Earnings Limit. The level is set each year as an annual amount and the weekly and monthly equivalents are proportions of the annual amount.
When earnings in any pay period exceed the appropriate PT, employee (primary) NICs are calculated on the excess.
Note that currently NICs are not actually payable on that part of the earnings falling between the LEL and the PT because the percentage rate applicable to the earnings is 0%.
page 28 of 60
Made with FlippingBook - Online magazine maker