New NIC reliefs for employersby
The National Insurance Contributions Bill 2021-22 introduces freeport and armed forces reliefs for employers, takes self-isolation support payments outside of Class 4 NIC and strengthens the DOTAS rules.
The rates and rules for national insurance contributions (NIC) are imposed by different acts to income and corporation tax, because it is not a tax. Thus, we have a series of National Insurance Contributions Acts and Social Security regulations; the latest National Insurance Contributions Bill 2021-22 is currently working its way through Parliament.
The main changes introduced by the Bill are explained below.
This new is available to employers with physical premises in freeport tax sites who take on new employees.
The relief comes into effect from 6 April 2022 and provides relief from employer’s (secondary) class 1 NIC on the earnings of a new freeport employee up to a new secondary threshold – the Freeports Upper Secondary Threshold (FUST), which is expected to be set at £25,000 a year.
Employer’s NIC are payable at the secondary rate of 13.8% to the extent that the earnings of the freeport employee exceed the FUST. The relief applies only to secondary contributions; freeport employees pay primary contributions as for other employees on earnings in excess of the primary threshold.
For the purposes of the relief, a freeport employee is an employee who is employed in a new employment with a freeport employer which starts on or after 6 April 2022 and before 6 April 2026. At the time the employment starts, the employer must reasonably expect that at least 60% of the employee’s working time will be spent at a single freeport tax site in which the employer has business premises.
What does freeport relief apply to?
The relief is restricted to earnings paid in the first three years of the employment to the extent to which these are not paid after 5 April 2031.
At present, the relief will be available for new hires that are taken on prior to 6 April 2026. However, it is the government’s intention for the relief to be available for nine years until 5 April 2031.
The government will review the use and effectiveness of the relief in order to determine whether to continue its availability beyond the earliest end date of 5 April 2026. Subject to a positive outcome to the review, the plan is to extend the relief for new hires for up to a further five years to the latest end date of 5 April 2031.
Employers of new hires taken on prior to 6 April 2026 will be able to benefit from the relief for the full three-year period. However, assuming the relief period is extended, availability of the relief will cease completely from 6 April 2031, regardless of whether the new hire is still in the first three years of their freeport employment. Once the relief period comes to an end, secondary contributions will be payable on the earnings of the freeport employee to the extent that they exceed the secondary threshold.
The relief from secondary contributions will be given effect through the payroll by the use of four new Freeport National Insurance category letters:
- F – standard category letter;
- I – married women and widows entitled to pay reduced NICs
- S – employees over state pension age; and
- L – employees who can defer paying primary NICs at 12% and pay only 2% because they have another job.
The new category letters mirror letters A, B, C and J for employees other than in a freeport tax site.
Armed forces veterans
The Bill also introduces a limited time relief for employers who take on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces.
This relief mirrors the existing reliefs for employers of employees under 21 and apprentices under 25 in that employer’s (secondary) National Insurance contributions are not due on earnings of the armed forces veteran up to a new secondary threshold, the Veteran Upper Secondary Threshold (VUST).
The VUST is set at £50,270, and aligned with the upper secondary threshold for under 21s and the apprentice upper secondary threshold (AUST). Employer contributions are payable at the usual rate of 13.8% to the extent that earnings exceed the VUST, while the veteran pays primary contributions as normal.
Once the veteran has completed the first year of their first civilian employment, secondary contributions are payable as usual on earnings above the usual secondary threshold.
Who does this relief apply to?
For the purposes of the relief, an armed forces veteran is someone who has served at least one day in the regular armed forces (including someone who has undertaken at least one day of basic training).
Although the relief is available from 6 April 2021 to the extent that the first year of the veteran’s civilian employment falls on or after this date, for 2021/22, effect is given retrospectively from 6 April 2022 and the employer must pay secondary contributions as normal on earnings in 2021/22.
For 2022/23 and 2023/24 relief is given through the payroll by means of a new category letter: V, which should be used in place of category letter A. If a category letter other than A would otherwise apply, this should be used rather than letter V. The Bill provides for regulations to be made to extend the availability of the relief beyond 2023/24.
Employers who are able to benefit from this relief for 2021/22 should ensure that they keep sufficient records to enable them to claim it retrospectively from April 2022. HMRC will publish details nearer the time of how to do this.
You might also be interested in
Sarah Bradford BA (Hons) FCA CTA (Fellow) is the director of Writetax Ltd (www.writetax.co.uk) and its sister company, Writetax Consultancy Services Ltd. She writes widely on tax and National Insurance contributions and is the author of National Insurance Contributions 2020/21 published by...