Example – Sophie’s employer saves over
£1,000
Sophie
is aged 19, and works for a telesales company on a salary of £16,120 a year,
which equates to £310 per week.
Without
the introduction of the new rules, her employer would have been liable to
employer NICs as follows for 2015/16:
Earnings
above the secondary threshold £310 - £156 = £154 per week
Employer
NI contribution on earnings above secondary threshold = 13.8% x £154 = £21.25
per week.
Total additional cost of
employment = £21.25 x 52 or £1,105 a year (subject to business tax relief as an
allowable deduction against the employer’s profits).
However, under the new
rules, this additional cost will fall to nil. Sophie’s own NIC position is unchanged, and these new rules apply
if she is hired in 2015/16, or she was already employed before the new rules
start in April 2015.
Benefits in kind are not affected
Where the employer provides chargeable benefits, such as private health insurance or a company car, then Class 1A NICs will remain payable by the employer as normal – there are no changes.
Abolition of employers’ NICs apprentices under 25 (From 6 April 2016)
This measure was announced in the autumn statement in 2014 so is very recent. It effectively extends the new rules for under-21s to employees under the age of 25, so long as they qualify as ‘apprentices’.
The current intention is for employer’s NICs to apply once earnings exceed the upper secondary threshold of £815 per week in 2015/16. However, this upper limit might be defined separately for under-21s, and separately again under the proposed legislation for apprentices under 25.
Further considerations – unintended consequences?
From the perspective of encouraging ‘young hires’, it may seem strange that the government only recently introduced legislation to stop age discrimination in the workplace, in the Equality Act 2010. For instance, one of the implications of the new age discrimination rules is that a prospective employer is not allowed to ask a candidate’s age or date of birth.
And yet a few years later they are introducing new measures that positively discriminate in favour of employing younger people.
There is a risk that employers will now seek to avoid hiring people aged 21 and over, or apprentices aged 25 and over, because it will be more expensive to do so. While the government may not like to admit it, positive discrimination in favour of one age group is unlikely to avoid negative discrimination against another.
The draft NIC legislation specifically makes provision to allow the age group for under-21s and apprentices under 25 to be varied – so that it could become a relief applicable to (say) under-25s generally, and apprentices under 30. There is already significant concern that many current apprentices are 25 and over, so the measure may be too narrowly targeted as it now stands.
There is also a risk that there will now be an incentive to dismiss employees once they reach 21, or apprentices once they reach 25, because they will become significantly more expensive. In time, there may be pressure to increase the qualifying age to avoid political embarrassment.
New NIC table letters have been introduced to handle the new 0% rate for under-21s, which will apply from April 2015, so that the new real time information (RTI) for PAYE can deal with reduced contributions automatically.
Whilst the new rules may help reduce the cost of employment in some cases, they will be another unwelcome complication for others. The draft NIC legislation also allows the upper limit of the 0% band to be varied independently of the upper secondary threshold, so there could eventually be three upper limits: one each for ‘ordinary’ employees, another for under-21s and another for apprentices under 25! This will force employers to be more reliant on good payroll software – and it also means that it will become even harder to check it is correct.
Practical Tips:
Particularly given that the new rules apply to existing employees, employers are going to have to know current employees’ dates of birth as well as check for new employees – although in most cases this will already have been established for RTI purposes anyway.
Unfortunately, there is as yet no working definition of a qualifying apprentice for the new rules, and ministers are consulting with stakeholders on a suitable definition – although the concept of an ‘apprenticeship agreement’ was introduced under the Apprenticeships, Skills, Children and Learning Act 2005 (for England and Wales) and would appear to be a good place to start, for employers looking to ensure that their own current and future arrangements are likely to fall within the new definition.
