National Insurance is showing its age

The government plans to remove Employers National Insurance Contributions for under 21’s

What are the current rates?

National Insurance “Free Pay” Allowances

 

Rate above allowance

2014/15

2015/16*

Primary Employee’s NI Free Pay

12%

£7,956

*£8,060

Upper Primary Employee’s NI Earnings Limited

2%

£41,860

£42,276

Secondary Employer’s NI Free Pay

13.8%

£7,956

*£8,060

Upper Secondary Threshold

13.8%

 

£42,276

 *Estimated values

What is changing? From 6th April 2015, employers will not be required to pay National Insurance Contributions (NICs) on earnings up to a new ‘Upper Secondary Threshold’ (UST), for employees who are under the age of 21. NICs will however continue to be payable on all earnings above the UST. The introduction of this policy will reduce the rate of employer secondary contributions to 0% for this younger group of employees but it will not alter the basic structure of National Insurance or how Employee’s NICs are assessed.

Why make the change? The government announced their intention to abolish Employer NICs for under 21’s in their 2013 Autumn Statement. The change is part of a wider package of measures announced by the government to help boost the employment opportunities for young people who leave school or college. For example, it will be over £500 cheaper to employ an under 21 year old earning £12,000 a year and over £1,000 cheaper to employ an under 21 year old earning £16,000 a year.

How will it work in practice? The change will be delivered by introducing a new earnings threshold called the Upper Second Threshold (UST). The government has said that for tax year 2015/16 the value of the UST and the Upper Earnings Limit (UEL) will be the same. The UEL for 2015/16 is expected to be £813 per week. The UST will not be reportable to HMRC on RTI returns.

Sapphire Summary: This is a welcome easement of overhead costs for all businesses from 2015/16, in addition to the £2,000 Employment Allowance introduced from this tax year. It is however another calculation added into an already complex tax system. It will be very interesting to see how the simplification and merger of PAYE and NICs, which has been earmarked for a few years now, will consider all of these arrangements. Watch this space…..!!