Abolition of employers National Insurance Contributions for ages 16 to 21. From 6th April 2015 every employer with employees under the age of 21 will no longer be required to pay Class 1 Secondary National Insurance Contributions (NICs) on earnings up to the upper earnings limit (UEL), for those employees. The UEL in 2015-16 is £815 per week (annual equivalent £42,380). The new zero rate will not apply to Class 1A orClass 1B NICs. The policy objective aims to encourage employers to employ individuals under the age of 21, by reducing the fiscal burden of employers NIC. This particular economic impact will also help to support youth employment.

Although the policy discriminates in favour of those aged under 21 in order to improve their prospects on the employment market, the measure is not targeted at any specific sector, all employers are eligible.

How this will affect the employer?
There will be some additional burdens on employers to update their systems so the correct NIC letter is applied to employees who are under 21. In the majority of cases, HMRC believe most payroll software will be able to implement the exemption automatically, but ultimately it is the employer’s responsibility to ensure the correct
category letter has been applied based on the age and circumstances of the employee.

There are 7 new National Insurance categories to choose from, these are as follows:

  • M – not contracted-out standard rate contributions
  • Z – not contracted-out deferred rate contributions
  • Y – mariners not contracted-out standard rate contributions
  • P – mariners not contracted-out deferred rate contributions
  • V – mariners contracted-out salary related contributions
  • I – contracted-out salary related standard rate contributions
  • K – contracted-out salary related deferred rate contributions

Three of the new letters (V, I and K) will be removed in April 2016 in line with the ending of ‘contracted-out’ status in relation to salary-related occupational pension schemes. The current structure of National Insurance will continue, but incorporate the changes introduced. There are no changes to the rules which set out how Class 1 NICs are assessed. Bonus pay, holiday pay and other payments will continue to follow the same calculation principles as they do now.

Advice for your employees.
Employees will continue to pay the standard rate of primary Class 1 NICs through their salary. They won’t see any reduction in their payments as it is employers who will benefit from this change. Employee’s entitlement to contributory social security benefits, including State Pension won’t be affected. Although existing employees may notice a change to the National Insurance category letter recorded on their pay slip.