Overview
This article gives an overview of the changes that HMRC are planning on introducing in April 2022, and how Fourth will incorporate them into its Workforce Management solution.
The exact legislative requirements have not yet been confirmed by HMRC. The information below is based on draft guidance already published by HMRC in relation to the proposed changes. Some changes are also only in a consultation stage and have not yet been officially confirmed. More information will be added as and when it is received.
National Insurance Contributions Relief for Employers of Veterans
On 11th January 2020, the UK Government published details of the new legislation to give National Insurance relief to companies who employ veterans for their first year of employment after leaving the armed forces. The relief provides a zero rate of employers National Insurance on the earnings of a qualifying veteran for 12 consecutive months from the first day of their first civilian employment. This zero rate will be applied up to the new Veterans Upper Secondary Threshold (VUST).
The relief is available from April 2021, although payroll systems will only be updated to calculate the zero rate from April 2022. Employers will need to retrospectively claim back any relief from the 2021/2022 tax year using the amended Full Payment Submission (FPS).
Eligibility
Employers will only be able to claim relief on the earnings of qualifying veterans. A person qualifies as a veteran if they have served at least one day in the regular armed forces, which includes those that have completed at least one day of basic training.
The relief is available to all employers of veterans regardless of when the veteran(s) left the armed forces if they have not previously been employed in a civilian role.
Limits on the Relief
The zero rate will apply to earnings up to the new VUST threshold. If the veteran earns more than the VUST, the relief can be applied to the part of the earnings below the VUST.
The first day of employment will be the start of the 12-month qualifying period. This period does not change if the employment ceases. This means that subsequent employers can claim the relief if they employ a veteran who is within their qualifying period. Subsequent employers will need to determine the first day of the veteran’s first civilian employment to establish if they can claim any relief.
New National Insurance Category
The relief will be delivered by introducing a new veteran-specific National Insurance Category letter.
- V - (standard category letter)
The new category will mirror the existing category A.
There may be occasions when the veteran would normally use a different category, such as B, T, or C. In this instance, there will be no veteran equivalent, and the usual standard category should be used. If veterans are eligible for relief and fall into one of the other categories, employers will need to contact HMRC at the end of each tax year to start a manual process of adjustment so that the relief can be claimed outside of the payroll.
Fourth’s Solution
Fourth is introducing the new National Insurance Category of V into the solution along with a new field to record the start date of a veteran’s first job after leaving the armed forces. This will enable the solution to automatically assign the V category and revert to the standard A category following the 12-month qualifying period.
Further information on Fourth’s solution will be published in the new year.
Freeport National Insurance Contribution Relief
In the Spring Budget 2021, the UK Government confirmed their commitment to delivering National Insurance contribution relief for Freeport employers in April 2022.
There will be up to 11 new Freeports created in locations across the UK which will have different custom rules than the rest of the country and will be hubs to boost global trade, attract investors and increase productivity.
The new Freeport National Insurance relief will apply to all Freeport based businesses and introduce a zero rate employers National Insurance for employees' earnings above the Secondary Threshold (ST) up to and including a new Freeport Upper Secondary Threshold (FUST). Earnings above the FUST would attract the usual National Insurance rate for employers.
Eligibility
Employers operating in a Freeport tax site and who employ Freeport employees will be eligible for a secondary Class 1 National Insurance (employers) relief on the earnings of eligible employees.
Employers in England, Scotland and Wales require physical premises in a Freeport site and will benefit from a zero rate of employers National Insurance on earnings of new employees who spend 60% or more of their working time within the Freeport tax site.
Limits on the relief
The new zero rate can be applied on the earnings of all new employees up to £25,000 per year from April 2022, for 36 months per employee.
New National Insurance Categories
The relief will be delivered by introducing four new Freeport National Insurance category letters:
- F – (standard category letter)
- I – (married women & widows entitled to pay reduced NICs)
- S – (employees over state pension age)
- L – (employees who can defer paying 12% NICs and pay only 2% because they are already paying in another job)
The new categories mirror existing categories A, B, C and J. If an employer has an employee who would usually be assigned a different category, the employer will be able to contact HMRC at the end of the tax year to engage in a manual process for claiming back the relief.
Fourth’s Solution
Fourth will be adding the four new categories to the National Insurance category selection. These will be manually assigned to employees based on their circumstances. A new flag set within a Location will determine whether the new Freeport categories are available to be assigned.
Further information on Fourth’s solution will be published in the new year.
Health and Social Care Levy
In the Autumn Budget 2021, the UK Government announced a new levy that will generate additional funds for health and social care.
The changes will be introduced in two parts:
- From 6th April 2022, there will be a temporary increase of 1.25% to class 1, 1A and B National Insurance contribution rates. This means that employees will pay a new higher rate of 13.25% and employers will pay a new higher rate of 15.05% below the Upper Earnings Limit (UEL) and 3.25% above the UEL
- From 6th April 2023, the new Health and Social Care Levy will apply to both employees (including those above state pension age) and employers at a rate of 1.25%. This will show as a separate element within the payslip. The Class 1, 1A and B National Insurance rates will revert to their original levels.
Fourth’s Solution
For the upcoming tax year, the National Insurance contribution percentages will be uplifted automatically in line with the changes when the portal is rolled forward into the new tax year.
In line with government advice, a new message will display on both email and ESS payslips explaining the increase in contributions.
From April 2023, changes will be made so that the Health and Social Care Levy will be calculated and shown separately to National Insurance, in line with the HMRC guidance (once it has been published).
Further information on Fourth’s solution will be available once more details have been published by HMRC.
Welsh Government Attachment of Earnings
The Welsh Government has launched a consultation to get opinions on whether Attachment of Earnings (AEO) thresholds should be increased.
The thresholds currently used were last updated in 2007, where they were brought into line with the Average Earnings Index which, in 2010, was replaced with the Average Weekly Earnings measure. Since 2006, the Average Weekly Earnings data has shown a large increase of 41% and the Welsh Government would like to increase the Attachment of Earnings thresholds in line with this.
If the results of the consultation agree with the Government’s proposal, there will be a new Attachment of Earnings order introduced for Welsh council tax arrears that will come into force in April 2022. Any new orders issued from April 2022 by the Welsh Government will be the new version.
Fourth’s Solution
Fourth has planned to introduce a new Attachment of Earnings order option for the new Welsh version in anticipation of the consultation being successful. If required, a new option with associated thresholds will be added to the current list of options available.
Construction Industry Scheme
From April 2022, HMRC are clamping down on Construction Industry Scheme (CIS) abuse by adding a requirement to report a Company Unique Taxpayer Reference (COTAX) on the Employer Payment Summary (EPS) when there is a CIS value greater than £0.00.
Fourth’s Solution
A new field has been added to the Company Details page in the Payroll Module for the company Unique Taxpayer Reference so that it can be reported to HMRC on the EPS. More details can be seen in this release note: Release Note: WFM UK: Pension and Payroll Module Enhancements, Company UTR Field
Further information on Fourth’s solution will be published in the new year.
New Terms/Acronyms
HMRC - Her Majesty's Revenue and Customs
NICs - National Insurance Contributions
VUST - Veteran Upper Secondary Threshold
FUST - Freeport Upper Secondary Threshold
AEO - Attachment of Earnings Order
CIS - Construction Industry Scheme
COTAX Reference - Company Unique Taxpayer Reference
EPS - Employer Payment Summary
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