Cintra’s payroll products will be making automatic changes in software for the start of the tax year 2016/17 with regard to National Insurance category letters.  The way that we look at these has changed from previous years, instigated by the major change in 2016/17 with the abolition of Contracting-Out.

The two main changes are detailed below – note that some of the Letters may look unfamiliar to you, however, they will be familiar to those who process ‘mariners’ payrolls’:

Contracted-Out NI Category Letters 

As you are no doubt aware, the State Pension regime is changing on 06 April 2016 with the abolition of the existing two-tier Basic State pension and Additional State pension.  The new Single-Tier pension signals the end of Contracting-Out for employers and employees, simply because the new regime means there is nothing from which to Contract-Out.

One National Insurance means one set of category letters and will involve a large volume of work if this had to be completed manually.  Therefore, Cintra will automate this and will perform the following changes in the first pay period of the new tax year:

Current:

Current

Letter

New Letter

Standard

D

A

Reduced Rate

E

B

Standard (under 21)

I

M

Mariners’ Standard Rate

N

R

Mariners’ Reduced Rate

O

T

Mariners’ Standard Rate (under 21)

V

Y

Deferred NI Category Letters 

UK legislation requires that all employees pay National Insurance Contributions on earnings between the Primary Threshold and the Upper Earnings Limit at the highest percentage rate, currently 12%.  However, some employees will hold the CA2700 deferment certificate from HMRC, allowing them to defer payment of employee’s Contributions at the full main percentage rate and pay at the deferred rate of 2% on this band of earnings.  This may be in the circumstances that they have another job where they are paying the main rate on the full band of earnings.

The important thing about the deferment certificate is that it is valid for only one complete tax year.  Employers should not continue deducting deferred Contributions at 2% unless they have received a new CA2700 for the new tax year.  An employer should not make the assumption that an employee who was deferred in the last tax year will automatically be deferred in the new tax year.

In recognition of this, at the start of the tax year, Cintra will transfer all employees on deferred Contribution categories to the Standard letter as follows:

Current:

Current Letter

New Letter

C/O Deferred

L

A

C/O Deferred (under 21)

K

M

Not C/O Deferred

J

A

Not C/O Deferred (under 21)

Z

M

Not C/O Mariners’ Deferred

Q

R

Not C/O Mariners’ Deferred (under 21)

P

Y

If the employee is still deferred and has a CA2700 for 2016/17, employers are advised to manually change the NI letter.

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