01 July 2021

The CIPP policy and research team provides an outline of the impending introduction of another zero rate for class 1 NICs

The 2021 Budget (http://ow.ly/DcSo30rI1lt) confirmed that eight new Freeports would be created in England. Similar freeports could be opened in Wales, Scotland and Northern Ireland.

A significant aim of the new policy is to provide employers with a class 1 National Insurance contributions (NICs) relief which reduces the cost of employing people to work within Freeport tax sites. It is hoped that this will have positive impacts for people local to these sites as the reduced costs should encourage employers to invest in the local labour market.

The Freeports Bidding Prospectus (http://ow.ly/G1yy30rI1n2), published in November 2020, contains details about the operation of the Freeports and the enhanced tax relief measures the government will offer, which includes the NICs relief.

Employers operating within Freeport tax sites will be able to pay 0% employer class 1 NICs on the salaries of new employees working within Freeport tax sites. (An employment is ‘new’ if the earner was not employed by the employer or by a person connected with the employer (within the meaning at section 993, Income Tax Act 2007, https://bit.ly/3xyrVLs) at any time within the period of two years ending with the day on which the employment begins.)

The relief will be available for a maximum period of three years (or 36 months, so often across four tax years), per employee and will apply to earnings up to a maximum of £25,000 per annum. Employees are classed as working within a Freeport tax site if they spend at least 60% of their working hours within that tax site. Additional details about how this will be established are expected at a later date.

The intention is for the relief to be available for nine years, commencing from April 2022.

The government will, however, review the policy part-way through this period, to decide whether it should be continued up until the proposed end date of 2031. The decision will be made based on the use and effectiveness of the relief.  What has been confirmed at this stage is that the relief will definitely be available up until April 2026, and therefore available for a minimum of four years. Where employers are abusing the relief, the government will take the necessary steps to stop their access.

It will also be mandatory for employers to be registered with the Freeport Governance Body and they must be operating within a Freeport tax site to be eligible.

Employers will claim the relief through pay as you earn (PAYE) real time information. Work will be carried out by HM Revenue & Customs (HMRC), in conjunction with payroll software providers, to ensure that the process is as seamless as possible.

There will be a requirement for employers to inform HMRC where the 0% rate ceases to be available in respect of an employee, either because their three-year eligibility period is coming to an end, or the employee or employer cease to meet the eligibility criteria.

In May 2021, HMRC published the policy paper, Zero-rate of secondary National Insurance contributions for Freeport employees (http://ow.ly/UMKB30rIiDC), which discusses a variety of details relating to the new relief. The policy paper focuses on how the new relief will work in Great Britain (i.e. England, Scotland and Wales). The measure does, however, provide for the introduction of a secondary class 1 NICs relief for employers in Northern Ireland Freeports, but further information relating to the new policy will be laid out by the Treasury at a later date.

The measure has been legislated for in the National Insurance Contributions Bill 2021 (http://ow.ly/YZ0O30rIj2A). The Bill also contains the measures for the class 1 secondary NICs relief for employers of veterans, available from tax year 2021/22.

In relation to the Freeports relief, section 8 of the Bill provides that “The Treasury may by regulations provide that there is to be an upper secondary threshold for secondary class 1 contributions for the purposes of any tax year to which section 1 [Freeports] or 6 [veterans] relates. … The regulations may specify an amount that would apply in relation to a tax year or part of a tax year before the regulations are made only for the purposes of tax years 2021/22 and 2022/23”.



Will we see the introduction of more employer NICs holidays in the future, to incentivise employers to hire a specific population of employees? We have already seen this implemented in relation to those aged under 21, apprentices under the age of 25, veterans, and those employed in Freeport tax sites, so what next? 


Featured in the July/August 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.