The National Insurance Contributions Bill 2021, which is working its way through Parliament, introduces a new zero rate of employer’s (secondary) National Insurance contributions for employers of armed forces veterans in their first civilian employment after leaving the armed forces. Clients who take on an armed forces veteran will not have to pay an employer’s National Insurance on the earnings of the armed forces veteran for the first year of the veteran’s first civilian employment since leaving the armed forces, unless the veteran’s earnings exceed a new upper secondary threshold. The upper secondary threshold will be aligned with those applying for employees under the age of 21 and apprentices under the age of 25. For 2021/22, the thresholds are set at £967 per week, £4,189 per month and £50,270 per year. Secondary contributions are payable at the usual rate of 13.8% to the extent that the earnings of the veteran exceed these limits.
For the purposes of the relief, an armed forces veteran is someone who has served at least one day in the regular armed forces. This includes someone who has undertaken at least one day of basic training.
The new zero rate is available from 6 April 2021, applying for the 2021/22, 2022/23 and 2023/24 tax years. However, for 2021/22, the relief will be given retrospectively from 6 April 2022; when paying the veteran in 2021/22, the client will need to account for secondary contributions as normal to the extent that the earnings of the veteran exceed the secondary threshold (set at £170 per week; £737 per month; £8,840 per year for 2021/22).
For 2022/23 and 2023/24, the zero rate on earnings up to the new upper secondary threshold for armed forces veterans will be applied through the payroll in real time.
Where the veteran’s first civilian employment after leaving the armed forces started after 6 April 2020 but before 6 April 2021, the zero rate will apply from 6 April 2021 to the first anniversary of the start date of the employment.
Subsequent and concurrent employers are also able to benefit from the relief during the relief period.
The relief only applies to employer’s contributions. The armed forces veteran will pay primary contributions as normal to the extent that his or her earnings exceed the primary threshold (set at £184 per week; £797 per month; £9,568 per year for 2021/22).
Once the relief period comes to an end, the client must pay secondary contributions as normal to the extent that earnings exceed the secondary threshold.
Written by the Tax Advice Network