HMRC’s Software Developers Team (SDT) have now published a briefing for payroll software developers regarding Veterans Employer’s NIC Holiday and here we provide details of how the new scheme will work.
The NIC Holiday will provide a zero-rate of secondary Class 1 National Insurance contributions on the earnings of qualifying veterans of the armed forces for 12 consecutive months. This will begin from the first day of civilian employment after leaving the regular armed forces, from 6 April 2021 until March 2022. The relief can be claimed for 12 months and is a set period which does not change if the employment ceases.
But it does mean that if a subsequent employer employs the veteran within the qualifying period, they can claim the relief for the balance of the set period. Furthermore, the subsequent employer will need to determine when the first day of civilian employment occurred and whether the veteran’s employment with them falls within the set qualifying period of 12 months.
However, all employers who want to claim the veterans NIC relief will have to pay secondary NI contributions as normal during 2021/22 and then reclaim the veteran’s NIC relief the following tax year (2022/23).
Who is Eligible?
Eligible veterans are defined as those who have served at least one day in the regular armed forces even if they have only completed one day of basic training. The relief can be claimed by all employers of veterans regardless of when the veteran left the armed forces but providing this is their first civilian employment.
Making the Calculations
The Veterans’ NIC Holiday will work in a similar way to National Insurance for those under the age of 21 and apprentices under the age of 25. The relief will be applied at a zero rate, not as an exemption, on earnings above the Secondary Threshold up to the new Veterans Upper Secondary Threshold (VUST). Where the veteran’s earnings exceed the VUST, secondary contributions will be due on the excess above the VUST. At the current rate, the secondary NI contributions on the excess earnings would be charged at 13.8%.
The calculation of Primary contributions will be unaffected.
New NI Category Letter
The NI relief will be delivered by introducing a new veteran’s NI category letter “V” which will mirror the existing NI category letter A.
There may be rare cases where the veteran would normally be on another NI category letter: B, T, C, W, J and Q but there is no veteran’s equivalent letter. For these rare occurrences, employers are advised to apply the existing standard category for the tax year and to contact HMRC at the end of the tax year for advice on the manual process for adjustment outside of their software solution.
Example of the Calculations
The chart below, sets out how the calculations will work in theory.
The employee on category “V” will pay NI contributions on earning above the Primary Threshold at 12% and where earnings exceed the Upper Earnings Limit (UEL) at 2%.
The employer will pay 0% on earnings above the Secondary Threshold up to the Veterans Upper Secondary Threshold (VUST) and where earnings exceed the VUST, the excess will be charged at 13.8%. The VUST is set at £50,270 per annum which is currently in line with the Upper Earnings Limit, the Upper Secondary Threshold and the Apprentice Upper Secondary Threshold.