The 2019 Conservative Party Manifesto stated:
We will reduce National Insurance contributions for employers if they employ ex-Service personnel.
In July 2020, HMRC published a Consultation entitled ‘Supporting veterans transition to civilian life through employment’. This 25-page document is very interesting about an employer’s Class 1 National Insurance Contributions (NICs) ‘holiday’. The pertinent points were confirmed at Spring Budget 2020 (point 2.179 is the most informative). The Condoc outlines the three key issues:
- How to define a veteran for the purpose of the relief
- The types of qualifying employment and the length of time it applies to
- The most effective way to administer this relief and how employers can claim it
On 11 January 2021, HMRC published its Responses document. This confirms:
- It will apply to employers who employ veterans of the Armed Services, as per a definition already contained in the Social Security Contributions and Benefits Act 1992 and Northern Irish equivalent
- The NICs holiday will apply to all veterans of the Armed Forces entering ‘civilian employment’ and will not be dependent on the date that they left. The NICs legislation defining civilian employment will be expanded to include overseas employment and be an employment that is not part of HM Armed Forces
- The holiday will not be extended to support employers’ people who have served in the Reserve Forces
- The holiday will apply to employers every time in a veteran’s lifetime when they enter civilian employment after leaving service. So, an employer of a veteran who left service, entered civilian employment, re-joined service, left and entered civilian employment again will be able to benefit. This is quite different from the position outlined by HMRC in the original consultation
- The qualifying veterans will not exclude employed directors of Single Director Companies, ‘deemed employees’ under the off-payroll reforms and users of Personal and Managed Service Companies.
- It will be a 12-month employer National Insurance Contributions ‘relief’, applying to earnings up to and including the new Veterans Upper Secondary Threshold (VUST) in the pay reference period (£50,270 per annum in 2021/22, to be confirmed)
- It will be effective April 2021 – for tax year 2021/22, however, this will not be through the payroll until tax year 2022/23 when it will be through RTI. ‘Transitional administrative arrangements will be in place for tax year 2021/22. This means that employers employing a qualifying veteran in civilian employment will have to pay the employer’s NICs and reclaim the monies
- Employers who employed a veteran before 06 April 2021 and they are in the first 12 months of civilian employees will be able to reclaim a pro-rated amount of employer’s NICs. Employers will calculate eligibility by counting from the veteran’s first day of civilian employment, regardless of whether that employment is with them or a previous employer
Primary legislation in the form of the National Insurance Contributions Bill (Regulations 6 and 7) will introduce a zero-rate of secondary Class 1 National Insurance Contributions for veterans with effect from 6 April 2021. This will amend:
- The Social Security Contributions and Benefits Act 1992 and
- The Social Security Contributions and Benefits (Northern Ireland) Act 1992
It will also allow the new Upper Secondary Threshold to be created, catering for veterans entering civilian employment (Regulation 8).
Note that this only applies for the tax years 2021/22, 2022/23 and 2023/24. However, the Bill allows for this to be extended by further tax years.
There is a ‘technical overview’ of this legislation, published on 11 January 2021.
As regards guidance on how employers will manually make the reclaim in tax year 2021/22, the Responses document says:
‘HMRC will publish guidance before April 2021 that sets out the information and records an employer will need to maintain for qualifying employments relating to the 2021 to 2022 tax year to claim the relief.’
This published guidance came in the form of a Policy Paper dated 10 February 2021 which simply said that an employer will need to keep the following records:
- Information showing that the individual is a qualifying veteran’ – see Regulation 7 of the Bill entitled ‘veteran conditions’
- The start date of the veteran’s first civilian employment
I assume that the employer will also want to keep details of the associated Secondary Class 1 Employers National Insurance contributions in the period until April 2022.
Making the Reclaim
In that regard, on 03 August 2021, HMRC produced guidance for software developers that will soon be replicated on the Gov.UK ‘Real Time Information support for software developers’. However, it is interesting and important for employers to note how the reclaim will be effected. There are two points worth noting:
- The reclaim will not be available in-year through software for tax year 2021/22. The Chartered Institute of Taxation (CIOT) have described this as ‘unfortunate’ meaning that a claim after the end of the tax year will affect the cash-flow of employers
- A new threshold is introduced called the Veterans Upper Secondary Threshold (VUST). The purpose of this is similar to the UST (Upper Secondary Threshold for those under 21) and the AUST (Apprentice Upper Secondary Threshold for apprentice under 25). The NICs Bill will prescribe that employer’s NICs are at 0% up to and including this threshold, however, the value of the VUST need not necessarily be the same as the value of the ST (Secondary Threshold), UST or AUST
So, HMRC’s guidance indicates that the value of the ST, UST, AUST and VUST will be aligned at £50,270 per annum – though we must wait for associated legislation to confirm this.
Tax Year 2021/22
- As above, for qualifying veterans, employers will need to pay the Secondary Class 1 NICs and make a reclaim after the end of the tax year
- However, HMRC has requested that payroll software is updated before April 2022 to allow employers to make a reclaim via an amended Full Payment Submission (FPS). This is not a legislative requirement but HMRC’s request to ‘provide a smooth customer journey’
- Where payroll software is not updated, HMRC will provide reclaim guidance before April 2022
- Employers should make the reclaim under NI category letter V. There is no equivalent veteran’s NI letter for a mariner (letters Q, T and W) or others (letters B, C and J). Where these letters may apply, an RTI amendment cannot be made and reclaim will be a manual process by contacting HMRC at the end of the tax year
Tax Year 2022/23
- Employers will be able to perform calculations in-year (through software)
- Qualifying employees (ex-veterans in civilian employment as per Regulation 7 of the above Bill) must be placed on NI category letter V
- Software will ensure that earnings up to and including the VUST will be free from Secondary NICs
- As above, there is only one NI letter, so any employee that would normally be on another letter
We are talking about a 12-month NICs holiday for employers on earnings up to and including the VUST. This 12-month holiday begins on the day that the ex-veteran first enters civilian employment. So, an issue will be accurate record-keeping, as outlined in HMRC’s Policy Paper dated 10 February 2021 (Example 3):
- A veteran C leaves HM Armed Forces on 01 August 2021, commencing civilian employment with Employer A on 30 August 2021
- Record-keeping (possibly payroll software functionality) for Employer A will record that 30 August 2021 is the start of the 12-month qualifying period
- Veteran C leaves Employer A and commences with Employer B on 30 November 2021
- Employer B will need to establish and record that Veteran C’s first day of civilian employment was 30 August 2021
- Employer B can place Veteran C on category letter V until 29 August 2022
All employers will want to ensure that their software is updated for 2022/23. However, employers that have employed qualifying veterans with the 12 months end date in the 2021/22 tax year will need to query whether there will be functionality to make a FPS adjustment in April 2022.
There is a lot of employers and software developers to get their head around here.