Policy paper

Technical note on the powers in the National Insurance Contributions Bill 2021

Published 28 July 2021

Part 1, Clause 1(5)

Zero-rate contributions for employees at freeport tax sites: Great Britain — power to define cases where this relief does not apply until the tax year has ended

1 . Class 1 NICs is administered in real time through PAYE and Real Time Information (RTI) returns. Employers use NICs category letters that apply the relevant rates of NICs against earnings. In a very small number of cases where the earner qualifies for multiple NICs categories, HMRC may not be able to provide the relief in real time. This does not change the amount of Freeport NICs relief the employer is ultimately entitled to.

2 . Clause 1(5) provides the Treasury with the power to specify cases where this relief does not apply until the tax year has ended. In these circumstances, the employer will be required to pay secondary Class 1 NICs as if this relief did not apply. Then, at the end of the tax year, the employer will be eligible to claim the relief against the secondary Class 1 NICs that would have otherwise been relieved in the previous tax year. This power will allow HMRC to deliver a relief that is beneficial to both employers and wider taxpayers. This only affects a very small number of employers and does not change the amount of relief employers can receive, only the timing that the relief can be claimed. Further, this power ensures that employees are not disadvantaged when both the employee and employer qualify for nonstandard rates of NICs.

3 . The Government intends to lay regulations to provide this relief as an end of year claim, rather than a real time claim. This will apply to when an employee is also:

a. A mariner who is also a married women with a reduced rate election.
b. A mariner who is also over State Pension Age.
c. An individual who elects to defer their NICs.

4 . This Statutory Instrument will be laid in Spring 2022 so that it has effect from April 2022.

Part 1, Clause 3(1)

Freeport conditions: supplementary — power to extend the period for which the relief applies until 5 April 2031

5 . Clause 2(1)(a) specifies that a Freeport employment must begin on or after 6 April 2022 and may not begin later than 5 April 2026. Clause 3(1) provides a power to extend the period for which this relief is available.

6 . A decision will be made on extending the relief after a review of the policy.

7 . If the Government does extend this relief, this Statutory Instrument so that it has effect from April 2026 and will change the date by which an employment must start to qualify for this relief. If extended, the Statutory Instrument will also specify the last date which an employer can claim this relief. It’s important to note that new hires before April 2026 will qualify for the full 36-month period (so in effect, an employee hired on 5 April 2026, can qualify for the relief until 5 April 2029, whether or not this power is used to apply the relief to employments commencing after 5 April 2026).

Part 1, Clause 3(2)

Freeport conditions: supplementary — power to make provisions about circumstances in which a condition is to be treated as met

8 . The Government intends to use this power to treat the condition in clause 2(1)(d), that an earner must spend 60% of their employed time in the Freeport, as being met in particular circumstances.

9 . The Government is currently considering the case of certain groups with protected characteristics (such as disabled earners who may not be able to meet the 60% rule due to reasonable adjustments allowing them to work from home). In this example, the effect of the power would be to extend the relief to more eligible employees to the benefit of employers.

10 . This Statutory Instrument will be wholly relieving and will be laid in Spring 2022 so that it has effect from April 2022.

Part 1, Clause 3(3)

Freeport conditions: supplementary — power to modify Freeport employment conditions

11 . The Government may wish to specify additional criteria that an eligible freeport employer may need to satisfy in order to claim the relief. The effect of specifying additional criteria could be to reduce the amount of relief that employers may qualify for or the number of employers that may qualify for the relief. The eligibility criteria are set against the background of current economic considerations and the Government may wish to amend the criteria to reflect changing circumstances.

12 . Following its departure from the EU, the UK has international subsidy control obligations under the UK-EU Trade and Co-operation Agreement and the Northern Ireland Protocol (NIP). The Department for Business, Energy & Industrial Strategy is currently designing the domestic subsidy control regime that will apply in the UK, which will need to be compliant with the UK’s international obligations. This power will also enable the Government to amend the Freeport conditions should that be necessary to make the relief compliant with the future subsidy control regime or the NIP. An example could be additional record keeping requirements for employers.

13 . If the Freeport measure needs to be amended to abide by the Government’s international obligations, then the Statutory Instrument will be laid so that is has effect from April 2022.

14 . This power is included in the Bill as the Government believes that secondary legislation is appropriate to set out the scheme in relation to Northern Ireland rather than additional primary legislation solely to cater for the introduction of a zero-rate of Secondary Class 1 NICs for freeport employees in Northern Ireland. The Government believes it is suitable to take powers in this Bill that will allow it to legislate for this relief so that it is available as soon as possible to employers setting up in Northern Ireland Freeports, whilst allowing the Government to establish the details of policy design once there is sufficient clarity on the most appropriate approach to delivering Freeports policy in Northern Ireland.

15 . The Government is working with the Northern Ireland Executive to ensure a suitable model for a Northern Ireland Freeport is developed; one that meets the Government’s international obligations in Northern Ireland (such as the NIP), the needs of the ports, businesses, and communities of Northern Ireland.

16 . The Government’s intention is that the employer NICs relief for Freeports employers is in place by 6 April 2022 throughout the UK. The power is circumscribed in that it can only make provision corresponding to or similar to the provisions that will apply to Great Britain.

Part 1, Clause 6(6)

Zero-rate contributions for armed forces veterans: power to amend primary legislation to extend the period for which the relief is available

17 . Clause 6(4) and 6(5) specifies that this relief can be applied against qualifying earnings from 6 April 2021 to 5 April 2024.

18 . A decision will be made on extending the relief after a review of the policy.

19 . If the Government does extend this relief, this Statutory Instrument will be laid in Spring 2024, but an announcement will be made in 2023 if the relief is extended. The Statutory Instrument will specify the tax years for which this relief will continue to apply.

Part 1, Clause 6(8)

Zero-rate contributions for armed forces veterans: power to define cases where this relief does not apply until the tax year has ended

20 . Class 1 NICs is administered in real time through PAYE and Real Time Information (RTI) returns. Employers use NICs category letters that apply the relevant rates of NICs against earnings. In a very small number of cases where the earner qualifies for multiple NICs categories, HMRC may not be able to provide the relief in real time. This does not change the amount of NICs relief the employer is ultimately entitled to.

21 . Clause 6(8) provides the Treasury with the power to specify cases where this relief does not apply until the tax year has ended. In these circumstances, the employer will be required to pay secondary Class 1 NICs as if this relief did not apply. Then, at the end of the tax year, the employer will be eligible to claim the relief against the secondary Class 1 NICs that would have otherwise been relieved in the previous tax year. This power will allow HMRC to deliver a relief that is beneficial to both employers and wider taxpayers. This only affects a very small number of employers and does not change the amount of relief employers can receive, only the timing that the relief can be claimed. Further, this power ensures that employees are not disadvantaged when both the employee and employer qualify for nonstandard rates of NICs.

22 . In the following cases, the Government intends to delay access to the NICs relief until the end of the tax year where the employee is also:

a. A mariner.
b. A married woman with a reduced rate election.
c. An individual who is over State Pension Age.
d. An individual who elects to defer their NICs.

23 . This Statutory Instrument will be laid in Spring 2022 so that it has effect from April 2022.

Part 1, Clause 8

Upper secondary threshold for earnings: power to specify an upper secondary threshold (UST) for every tax year to limit the earnings to which the zero rate Secondary Class 1 contributions applies for freeport employees or veterans

24 . The Government intends to use this power to set the UST for both the Freeport and the veterans measure.

25 . As outlined in the Consultation and Response Documents, the UST for the veterans measure will be aligned with the under 21 and under 25 apprentice UST and AUST for the 2021-22 and 2022-23 tax years. This is currently £50,270 per annum.

26 . As outlined in the Bidding Prospectus, the UST for the Freeport measure will be set at £25,000 per annum.

27 . The Government will lay a Statutory Instrument to that effect in Spring 2022, so that it has effect for the 2021-22 tax years (veterans only) and 2022-23 tax year (Freeport and veterans).

Part 3, Clause 11

Disclosure of contributions avoidance arrangements: amendment to section 132A(1) Social Security Administration Act 1992 (SSAA 92)

28 . Section 132A(2) of the SSAA 92 restricts the scope of the power provided by subsection (1). The regulations can only operate by applying to NICs (with or without modification) or making provision for NICs corresponding to primary or secondary legislation relating to the disclosure of information in relation to income tax avoidance arrangements in Part 7 Finance Act 2004.

29 . Clause 11 widens the existing power in the Social Security Administration Act 1992 to make regulations that impose reporting requirements in relation to arrangements that aim to avoid NICs. The amendments will ensure regulations can be made mirroring the amendments to the DOTAS procedures which are included in Finance Act 2021.

30 . Amendments to the existing regulations on reporting requirements in relation to NICs could be laid and made more than 2 months after Royal Assent in 2022.