Employers to get NIC benefit for armed forces veterans
Samantha Mann considers the latest consultation that uses the carrot, of employer NIC cost-saving, to support armed forces veterans into civilian working life.
Secondary National Insurance Contributions (NIC) add a significant cost when taking on a new employee. Often seen as a key driver in affecting behaviour of both employers and workers, it remains a useful incentive for the government to encourage employer recruitment.
Secondary NICs are currently charged at a rate of 13.8% on earnings in excess of the Secondary Threshold (ST), which is currently £8,788 per year or £732 per month (£169 per week).
Unlike employee (Primary) NICs there is no Upper Earnings Limit (UEL), so the more an employee earns, the more the employer pays in NIC.
As you would expect with any aspects of the tax system, there are exceptions to this rule.
Apprentices aged under 25
Since April 2016, if an employer takes on an apprentice under the age of 25, the rate of NIC they are obliged to pay on earnings up to £50,000 reduces from 13.8% to 0%. If earnings were to exceed £50,000 in a tax year, the rate on amounts paid above this threshold, the Upper Secondary Threshold (UST) reverts to 13.8%.
The category that an employer would use in this instance is H, and evidence would be required in the form of an apprenticeship agreement which details the government framework or standard, and the start date of the apprenticeship.
Employees aged under 21
Since April 2015, where an employer takes on an employee under the age of 21, they equally benefit from a significant saving as their secondary NIC reduces from 13.8% to 0% up to the UST of £50,000.
The category to use in this instance is M. Both initiatives are aimed at increasing the employment of young people and taking on more apprentices.
Armed forces veterans
From April 2021 it is proposed that for employers who employ veterans into civilian employment will benefit from a saving in secondary NICs.
The policy detail that this consultation seeks to deliver, will fulfil a manifesto promise that employers will, for a period of twelve months, make a saving on their secondary NICs up to the UST limit of £50,000. If utilised in full, this would create a direct cost saving in excess of £5,500 per veteran employed.
Earnings in excess of the UST would attract the usual secondary contribution of 13.8%.
The government doesn’t believe that a payroll solution is possible by April 2021 and so the paper proposes that 2021 will provide a transition year, during which time the employer will continue to contribute employer NICs. But at the end of the year they will claim a rebate that will be credited to their PAYE account. From April 2022, the employer will be able to claim this relief in real time via PAYE although the details or how are as yet not known.
As with any payroll initiative, the employer will be required to keep records that evidence an employer’s eligibility for claiming the relief.
The paper proposes a number of possible solutions and much will depend on how the relief is designed.; however, the starter checklist is, once again, considered as a possible source of information to validate to claim. This could include, depending upon consultation outcome, confirmation this is the veteran’s first employment since leaving the armed forces, or where not, start and end dates of previous employments – views on this subject are encouraged.
Priority of relief
In the event that the veteran employee would also provide the opportunity for relief from secondary employer NI; for example, they are under 21, then the veteran’s relief would be claimed first for the period of 12 months with further relief being claimed until the employee reaches 21.
The 12 month period will be subject to the detailed policy outcome of the consultation.
Spotlight on on-costs
The Job Retention Scheme, brought in to support jobs during the lockdown, has shone a light on direct employer costs that are incurred when taking on an employee and as unemployment figures grow, so too do the reasons for employers looking to make the best use of cost-saving policies such as this proposal.
The government proposes to utilise support through NIC savings for a ‘sunset’ period of three years, which would allow them to monitor the success, or otherwise, of this initiative.
The devil is, as always, in the detail, and this consultation has lots of detail to consider and will close on 5 October 2020.