HMRC’s Software Developers Team (SDT) have now published a briefing for payroll software developers providing further details on the Freeports Employer’s NI Relief. Here we provide details of how the new scheme will broadly work and the new NI category letters.
Please note that Freeports Employer’s Relief will not apply until 2022/23.
As previously reported, part of the Government’s strategy to boost the economy activity across Great Britain, they aim to create 11 Freeports. The Freeports will have different customs rules than the rest of the UK. To generate employment opportunities there will be a reduction in the rate of employer’s National Insurance which will be applied to all Freeport businesses.
The NIC relief of zero rate of secondary NI contributions will be applied to employees’ earnings which exceed the secondary threshold for NI up to and including a new Freeport Upper Secondary Threshold (FUST). The FUST is expected to be set at £25,000 which is far less than the current Upper Earnings Limits which is set at £50,270 per annum.
Where earnings exceed the FUST, the Secondary contributions will be charged at 13.8%. The calculation of Primary contributions will be unaffected.
Who is Eligible?
Eligible employers must have physical premises in the Freeport tax site. To qualify, employees must be a new hire from 6 April 2022.
The new employees cannot have worked for that specific employer or connected to the employer in the previous 24 months. Furthermore, the new employee must spend 60% of their working time in the Freeport tax site.
Eligibility to claim the relief will expire after 36 months from the employee’s employment start date.
For employers based in Freeports in Northern Ireland, details about how their scheme will work will be released in due course.
Making the Calculations
The Freeports NIC Relief will work in a similar way to National Insurance for those under the age of 21, apprentices under the age of 25 and the new veteran’s relief except the FUST is lower than other upper secondary thresholds. The employer will have a zero rate of NI on earnings above the secondary threshold up to a new Freeport Upper Secondary Threshold.
There will be four new category letters for Freeport employees for 2022/23 which will be covered next.
New NI Category Letter
The NI relief will be delivered by introducing new NI category letters which are as follows:
- F – standard rate (mirrors category A)
- I – reduced rate which is paid by married women and widows with a current CA4139 certificate (mirrors category B)
- S – over state pension age who are exempt from paying primary NI contributions (mirrors category C)
- L – deferment certificate holders (CA2700) (mirrors category J)
How the Calculations will Work
The chart below, which sets out how the calculations for category F will work in theory but are based on the current 2021/22 rates for demonstration purposes. HMRC have based the Freeports Upper Secondary Threshold (FUST) on the expected figure of £25,000 for 2022/23.
Employees on category “F”, will pay NIC at 12% on earnings above the Primary Threshold up to the Upper Earnings Limit (UEL) and then 2% on earnings above the UEL.
Employers will pay 0% on earnings above the Secondary Threshold up to the FUST and then 13.8% on earnings above the FUST.