Armed forces veterans NIC relief

What is it?

Since 6 April 2021, a new NIC relief has been available to encourage employers to employ qualifying armed forces veterans.

Who does it apply to?

A qualifying armed forces veteran is a person who has served at least one day in the regular armed forces and who starts to work in the civilian sector.

For qualifying persons, this measure provides relief from employer’s (secondary) Class 1 NICs on the employee’s earnings up to the Upper Secondary Threshold, currently £50,270 p.a. Any earnings in excess of the Upper Secondary Threshold are subject to employer’s NIC at the normal rate of, currently, 13.8 per cent.

The relief is available for 12 consecutive months starting with the person’s first day of civilian employment. Note that this 12-month period may span more than one employment ie, the person can carry the NIC relief from one employer to another, up to the end of the 12-month qualifying period, so long as the new employment commences within that 12-month qualifying period.

At the end of the 12-month qualifying period, the relief ceased and secondary Class 1 NICs are payable as normal.
The earnings that qualify for veterans NIC relief will not be subject to the 1.25 per cent uplift in NIC rates effective 6 April 2022, or the new Health and Social Care Levy, which is due to take effect from 6 April 2023.

Note that this is an employer only incentive. Employees’ (primary) Class 1 NICs will remain payable in the normal way.

Administrative considerations

For the current tax year, 2020/21, the relief must be claimed retrospectively ie, employers must pay the NICs as normal and then claim it back from HMRC. At the time of writing, HMRC have not yet advised how the claim/ refund process will work, but they have requested payroll software developers to build their software to include an ability for employers to make the retrospective claim eg, via a payroll amendment/ amended FPS. 

With effect from April 2022, employers will be able to apply the relief directly via PAYE, by using another special NIC letter – category V, which will mirror the existing category letter A only.

In some cases, a veteran employee may use a NIC category other than A, for example married women and widows entitled to pay reduced NIC (category B), employees over state pension age (category C) or employees with an NIC deferment (category J). In these cases, the employer will need to continue to apply the normal NIC category, not category V, and will have to claim the NIC relief by contacting HMRC at the end of the tax year.

HMRC have stated that they will publish guidance for employers on the method for claiming relief, before April 2022.

What should employers do now?

Employers should review their employee population to identify whether any qualifying armed forces veterans have or will be recruited between 6 April 2021 and 5 April 2022. Where qualifying veterans are identified, watch out for HMRC guidance as to how to make the NIC refund claim, which should be published before April 2022.

Employers should engage with their payroll software provider (or where payroll is outsourced, with their payroll provider) to ensure that the business’ payroll processes include the identification of any new qualifying veterans who are engaged with effect from 6 April 2022.

Employers should also ensure, if claiming the relief, that they maintain records to evidence:

• that the employee is a qualifying veteran.
• the start date of the veteran’s first civilian employment.

For more information or if you have any queries, please contact Susan Ball.