Exemption from National Insurance contributions for COVID-19 Test and Trace Support Payments
Updated 25 March 2021
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Who is likely to be affected
Local Authorities, employers and employees.
General description of the measure
This measure disregards payments made under the Test and Trace Support Payment Scheme in England to employees who are on a low income and have been asked to self-isolate by NHS Test and Trace (NHSTT) so that payments made under the scheme will not be liable to employer or employee Class 1 National Insurance contributions. Employers will also not be liable to Class 1A National Insurance contributions in respect of the payments.
The Test and Trace Support Payment Scheme was piloted in Blackburn with Darwen, Pendle and Oldham from 1 September 2020.
On 20 September 2020, the government announced that from 28 September 2020 the pilot would be adapted and rolled out across England. People on low incomes who have tested positive for coronavirus (Covid-19) or have been told by NHSTT to self-isolate, that cannot work from home and have lost income as a result would be supported by a Test and Trace Support payment of £500. This lump sum 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 scheme 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 make sure 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) 1A National Insurance contributions exemption is being introduced as a consequence of payments made under the Test and Trace Support Payment scheme.
The law currently sees these payments as earnings derived from employment and therefore subject to Class 1 National Insurance contributions. This measure removes the need 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 the scheme for a limited period of time before the legislation comes into force.
This measure has been prepared to support the implementation of the Test and Trace Support Payment scheme. As the scheme is an urgent government response to the coronavirus outbreak, there has been no time to consult widely on the proposals although the Department of Health and Social Care have been consulted.
Detailed proposal
Operative date
The measure will have effect from 22 October 2020.
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) (England) Regulations 2020 introduce a Class 1 and 1A National Insurance contributions exemption for payments made under this scheme. They were laid before Parliament on 1 October 2020 and come into force on 22 October 2020.
Exchequer impact (£million)
| 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. For the duration of the pilot they were paid up to £182 for their period in self-isolation – if they were in work, on low-incomes and in receipt of benefits.
From 28 September 2020 the payment will be £500 for the duration of self-isolation. Customer experience is expected to improve given that individuals who receive payments under the scheme will not need to pay Class 1 or 1A National Insurance contributions. This measure is not expected to impact family formation, stability or breakdown.
Customer experience is expected to remain broadly the same as it does not change how individuals interact with HMRC.
Equalities impacts
The measure is expected to have a positive impact on the individuals who receive payments under the scheme and for wider society generally. Removing the administrative burdens on local authorities will make administration of the scheme easier which is expected to promote the success of the scheme 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 government’s efforts to reduce the infection rates for the communities where they live and work.
It is not anticipated that there will be impacts on any particular protected characteristic group.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on employers by removing the obligation to account for employer National Insurance contributions. 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. Continuing savings will include employers not having to pay employer National Insurance contributions and account for employee National Insurance contributions on these payments.
Customer experience is expected to improve given that employers will not have to pay employer National Insurance contributions and account for employee National Insurance contributions on these payments.
There is not expected to be any impact on civil society organisations outside of their capacity as employers.
Operational impact (£million) (HMRC or other)
The measure is expected to have negligible impact on HMRC operations.
Other impacts
Other impacts have been considered and none has 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, 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.