26 January 2022
Despite the disruption to the UK economy brought about by coronavirus, the government has been busy introducing National Insurance Contributions reliefs. Relief for employing armed forces veterans has been in place since 6 April 2021, and a new NIC relief for employers in Freeport areas is to be introduced with effect from 6 April 2022.
While the reliefs are welcome, they bring additional administration for employers, in particular:
- Additional NIC categories to contend with, and the overlap (or conflict) between new and old NIC categories.
- A need to update payroll and HR processes to identify:
a) when a new NIC relief may apply, and
b) the evidence required to apply the relief.
- Maintaining adequate tracking mechanisms to ensure that NIC reliefs either continue to apply or are ‘switched off’ at the appropriate time.
Manually automated NIC reliefs
The Freeport relief introduces four new NIC categories, F, I, S and L, mirroring the existing NIC categories of A, B, C and J. Note that there is no Freeports equivalent for other categories that may apply, such as the various NIC categories for mariners.
Veterans NIC relief will introduce another new NIC category, V, which will mirror existing category A only. There is no veterans equivalent for other categories that may apply, such as category B (for certain married women and widows), category C (for employees over state pension age) or category J (employees with NIC deferment).
Applying the relief would be straightforward if all Freeport and veteran employees were on NIC category A, B, C or J, with employers able to claim the relief for all relevant employees in real time via PAYE. But in those cases where an employee would normally use a category for which there is no veterans or Freeports equivalent, as applicable, employers will have to continue to apply the normal NIC category and then claim NIC relief by contacting HMRC at the end of the tax year.
This may create an administrative headache for some employers in terms of applying the correct NIC category to the payroll at the outset, leading to a risk of errors. It also creates another manual tax year-end process at what is already an extremely busy time.
Further HMRC guidance on how employers will be able to claim the relief for veterans for 2021/22 is expected before April 2022. In the meantime, employers should update their payroll onboarding processes so that they can identify new Freeport or veteran employees, allocate the correct NIC category at source, and/or introduce a new process to claim a Class 1 Secondary NICs refund after the end of the tax year.
It’s clear from our discussions with employers that there is still widespread confusion as to whether, when and how they should apply the new NIC relief rules.
For more information, please see our articles on ‘Freeports NIC relief’ or ‘Armed forces veterans NIC relief’ or contact Susan Ball.