Policy paper

Exemption from National Insurance contributions for COVID-19 Test and Trace Support Payments for Scotland and Wales

Updated 25 March 2021

Applies to Scotland and Wales

Who is likely to be affected

Local Authorities, employers and employees.

General description of the measure

This measure disregards payments known as a Self-Isolation Support Grant in Scotland and a Self-Isolation Support Payment in Wales, from employer and employee Class 1 National Insurance contributions and Class 1A National Insurance contributions.

The schemes are designed to help employees on low incomes who have been asked to self-isolate by the Test and Protect Service in Scotland or the NHS Wales Test, Trace, Protect service in Wales, cannot work from home and will suffer financial consequences as a result. Individuals who qualify for assistance will receive a lump sum payment of £500 for the duration of their self-isolation. The payment aims to provide additional financial support to those on low incomes so they can self-isolate and help stop the spread of the coronavirus.

Policy objective

Payments made under the schemes are earnings and liable to employee and employer Class 1 National Insurance contributions. This means that local authorities would have to account for and potentially deduct the value of employee National Insurance contributions from any payments made. Additionally, the employer would have to deduct Class 1 National Insurance contributions on the gross value of the payment received by their employees under the scheme. This would result in a cost burden on local authorities who administer the scheme and on employers.

The measure is being introduced to ensure that these payments are not subject to National Insurance contributions to prevent these administrative costs from arising.

Background to the measure

The Class 1 and (employer only) Class 1A National Insurance contributions exemption is being introduced as a consequence of payments made under both schemes.

These payments are earnings derived from employment under National Insurance contributions legislation and therefore subject to Class 1 National Insurance contributions. This measure removes the requirement for employers or local authorities to report and deduct National Insurance contributions on these payments.

HMRC will use its administrative powers to exempt payments made under both schemes for a limited period of time before the legislation comes into force.

This measure has been prepared to support the implementation of both schemes. As they are urgent government responses to the coronavirus outbreak, there has been no time to consult widely on the proposals. A similar scheme was introduced in England on 28 September 2020.

Detailed proposal

Operative date

The measure will have effect from 5 January 2021

Current law

There is currently no Class 1 or 1A National Insurance contributions exemption for these payments which are earnings for the purposes of section 3 of the Social Security Contributions and Benefits Act 1992. Under section 10 of that Act, where an amount of general earnings is chargeable to income tax under the Income Tax (Earnings and Pensions) Act 2003 but is left out of account in the computation of earnings for the purposes of Class 1 contributions, for instance, if exempted, a Class 1A contribution is payable on that amount.

Proposed revisions

The Social Security Contributions (Disregarded Payments) (Coronavirus) (Scotland and Wales) Regulations 2020 introduce a Class 1 and 1A National Insurance contributions exemption for payments made under this scheme. They were laid before Parliament on 15 December 2020 and come into force on 5 January 2021.

Summary of impacts

Exchequer impact (£m)

2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is expected to impact on individuals who have tested positive for coronavirus or have been in contact with someone who has. From 12 October 2020 in Scotland and 23 October 2020 in Wales, these individuals will be paid £500 for the duration of self-isolation if they are in work, and are on low-income and in receipt of benefits. This measure is expected to have a positive impact on these individuals who receive payments under the scheme by removing the requirement to pay Class 1 National Insurance contributions. Customer experience is expected to remain broadly the same as it does not change how individuals interact with HMRC.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

The measure is expected to have a positive impact on protected characteristic groups who receive payments under both schemes and for wider society generally. Removing the administrative burdens on local authorities will make administration of the schemes easier which is expected to promote the success of the schemes in reaching eligible claimants. Individuals who qualify for payments will be incentivised to observe their period of self-isolation. This observance will in turn support the Scottish and Welsh Governments’ efforts to reduce the infection rates for the communities where they live and work.

Impact on business including civil society organisations

The measure is expected to have a negligible impact on employers by ensuring that employers will not have to pay employer National Insurance contributions and account for employee National Insurance contributions on these payments. The number of employments and employers is uncertain and could be impacted by high regional clusters of cases. One-off costs include familiarisation with the new rules. There are not expected to be any continuing costs. Customer experience is expected to remain broadly the same as it does not change how employers interact with HMRC.

There is not expected to be any impact on civil society organisations outside of their capacity as employers.

Operational impact (£m) (HMRC or other)

The measure is expected to have negligible impact on HMRC operations.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact HMRC at nics.correspondence@hmrc.gov.uk

Declaration

The Rt. Hon. Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.