A new National Insurance Contributions (NICs) holiday for employers who hire former members of Her Majesty (HM) armed forces came into force on 6 April 2021. This allows employers to apply a zero-rate of secondary Class 1 Employer NICs on the earnings of veterans during the first year of their civilian employment post-service. The zero-rate applies up to the Veterans Upper Secondary threshold (currently £50,270 per annum).

From 6 April 2022, employers can now claim this relief in real time by submitting Real Time Information (RTI) returns. Employers who used this relief in 2021-22 can claim back the relief retrospectively for any qualifying employees who joined their company in the last 12 months.

Employers can claim this relief for the 12-month period starting on the first day of the veteran’s first civilian employment after leaving the regular armed forces.

An employee qualifies as a veteran if they have either:

• served at least one day in the regular armed forces
• completed at least one day of basic training

The relief is available to a veteran who has started their first civilian job regardless of when they left the regular armed forces.

The Minister for Defence People and Veterans said:

‘Our veterans have made important contributions to keeping our country safe. The skills they gain during service are invaluable, and businesses can greatly benefit from their dedication. I encourage all businesses to consider hiring veterans and supporting their journey to civilian life after service.’

In the recent Spring Statement, a significant increase in the National Insurance Threshold from £9,880 to £12,570 was announced. This increase will see the alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570. This change is effective from 6 July 2022.

The changes will come into effect from 6 July to allow payroll software developers and employers to update their software.

The self-employed pay NICs on an annual basis and at the end of the tax year means that the NIC threshold for Class 4 NICs will rise to £11,908 in 2022-23 before being fully in sync with the personal allowance of £12,570 2023-24. The £11,908 figure is calculated using 13 weeks of the NIC threshold allowance at £9,880 and 39 weeks of the threshold at £12,570. It has also been confirmed that the NIC and Income Tax thresholds will remain aligned going forward.

Further, for 2022-23, the point at which the self-employed start paying Class 2 NICs will increase to £11,908. This means that those with profits between the Small Profits Threshold (£6,725) and the LPL (£11,908) will not need to pay Class 2 NICs from April 2022 but will still be able to access entitlement to contributory benefits.

We would like to remind our readers that the increases in National Insurance Contributions (NIC) of 1.25% – first announced last year – will take effect from April 2022. These increases will be ring-fenced to provide funding for the NHS, health and social care.

The increases will apply to:

• Class 1 contributions (paid by employees) above the primary and secondary thresholds. This is the NIC that is deducted from your earnings by your employer.
• Secondary Class 1 (paid by employers). Employer's NIC contributions are paid as part of the regular PAYE/NIC payments unless they are covered by the present £4,000 employment allowance.  
• Class 4 (paid by self-employed). These contributions are added to your annual Self-Assessment statement.

Employers should ensure that they are prepared for the increase as these changes will increase wage costs from April 2022.

All existing NICs reliefs to support employers will continue to apply. In addition to the employment allowance, this includes the following:

• employees under the age of 21
• apprentices under the age of 25
• qualifying Freeport employees
• armed forces veterans

From April 2023, these increases will be incorporated into a new Levy. The Levy will be administered by HMRC and collected by the current channels for NICs – Pay As You Earn and Income Tax Self-Assessment.

Please note, at the time this article was written there has been significant political pressure in parliament to cancel this increase. We will advise if this challenge results in the withdrawal of the 1.25% increase.

National Insurance credits can help qualifying applicants fill gaps in their National Insurance records. This can assist taxpayers to build the number of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to receive, for example, the State Pension.

This could happen if someone was:

• employed but had low earnings
• unemployed and were not claiming benefits
• self-employed but did not pay contributions because of small profits
• living or working outside the UK

National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance credits. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may be able to pay voluntary contributions to fill any gaps if they are eligible.

It is important to bear in mind that the 1.25% increase in National Insurance contributions (NICs) for 2022-23 will apply to National Insurance Class 1 and Class 4 contributions from April 2022. This means that the increase will apply to Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs. Those above State Pension Age are not impacted by the April 2022 changes although see closing comments on the new Levy from April 2023.

Smaller employers who benefit from the NIC employment allowance may not be affected by the increase in employer secondary Class 1 contributions if their NI bill is covered by the allowance. The employment allowance currently allows eligible employers to reduce their National Insurance liability by up to £4,000 per year. The allowance is only available to employers that have employer NIC liabilities of under £100,000 in the previous tax year.

The employment allowance cannot be used against Class 1A or Class 1B NICs liabilities and accordingly, the 1.25% increase will represent a real cost even for small employers whose Class 1 NIC bill is covered by the employment allowance.

From April 2023, these increases will be incorporated into a new ringfenced Health and Social Care Levy of 1.25%. The levy will apply to those who pay Class 1 (employee and employer), Class 1A and 1B and Class 4 (self-employed) NICs and will also be extended to those over State Pension age who are in work. The NIC rates will revert to their current level, but the increase will of course remain by way of the new levy.