National Insurance contributions relief for employers of veterans – policy paper
10 February 2021
HMRC has released a policy paper, to discuss the relief that will be available to employers who hire veterans from 6 April 2021.
Claiming the relief
For the first year of the policy’s implementation (from April 2021 – March 2022), employers will be required to pay the secondary Class 1 National Insurance (NI) contributions associated with payment to veterans as normal, and then will have the option to claim it back retrospectively, from April 2022 onwards. From April 2022 onwards, a real time solution will be introduced so that the relief can be applied through PAYE. HMRC confirms that additional guidance relating to how employers can claim the relief back will be issued prior to April 2022.
Who qualifies?
Employers will only be able to claim employer NI relief on the earnings of qualifying veterans. A person qualifies as a veteran if they have served at least a minimum of one day in the regular armed forces, and this is inclusive of anyone who has completed at least one day of basic training.
The relief is available to all employers who hire veterans, irrespective of when the veteran left the regular armed forces, but on the proviso that they have not been previously employed in a civilian capacity.
Qualifying employments
Relief is available for any civilian employment, and that is any employment that is not part of the armed forces, but includes employments with organisations that may have strong links to HM Armed Forces, e.g., the Ministry of Defence or NATO. Employment with a reserve organisation is not considered as civilian for the purpose of this relief and does not trigger the qualifying period.
As self-employed individuals do not pay Class 1 NI contributions, self-employed businesses are not eligible for this relief. Additionally, self-employed work does not trigger the qualifying period either.
Limits on the relief
Relief is applicable to earnings up to the Upper Secondary Threshold (UST). Where a veteran’s earnings exceed this threshold, employers are able to apply the relief on the portion of earnings that fall below the threshold. This aligns the new relief with existing reliefs for those aged under 21 and apprentices aged below 25.
Employers can claim relief if they employ a veteran during the qualifying period, which commences with the veteran’s first civilian employment since leaving the regular armed forces and ends 12 months later.
Employers are able to claim relief even where the employment starts prior to 6 April 2021 but can only claim for the remaining qualifying period.
The first date of employment is the start date displayed on the contract of employment between the employer and the employee.
The 12-month period does not change if the employment finishes. This means that current and future employers can also claim this relief if they employ a veteran within their qualifying period. Subsequent employers must, therefore, determine what the first day of the veteran’s first civilian employment was, and confirm that the veteran is employed within their business during the qualifying period.
Some examples to aid understanding of this are provided, as follows:
Example one
Veteran A leaves HM Armed Forces on 31 December 2020.
Veteran A starts their first civilian employment on 6 July 2021.
The employer confirms whether the veteran qualifies. They will then clerically record 6 July 2021 as the start date of employment (this date is also the start of the veteran’s 12-month qualifying period).
Employers will be eligible for relief on the earnings of the veteran’s earnings from 6 July 2021 until 5 July 2022 or when the employment ceases (whichever comes first).
The employer will need to pay the associated secondary Class 1 Employers National Insurance contributions until April 2022.
If the employment ceases on 1 November 2021, the employer notes the employment end date on their local records and claim this relief in April 2022 (for the period 6 July 2021 to 1 November 2021).
Example two
Veteran B leaves HM Armed Forces on 1 February 2021.
Veteran B starts first civilian employment on 30 June 2021.
The employer confirms that the veteran qualifies. They will then clerically record 30 June 2021 as the start date of employment (this date is also the start of the veteran’s 12-month qualifying period).
The employer will need to pay any associated secondary Class 1 Employer National Insurance contributions until April 2022.
The veteran stays in this employment indefinitely. In April 2022, the employer will claim the relief for the period 30 June 2021 to 5 April 2022 and start applying the relief through PAYE from 6 April 2022 until 29 June 2022.
Example three
Veteran C leaves HM Armed Forces on 1 August 2021.
Veteran C starts their first civilian employment on 30 August 2021.
Employer A confirms that the veteran qualifies and will record 30 August 2021 as the employment start date (this date is also the start of the veteran’s 12-month qualifying period).
The employer will need to pay the associated secondary Class 1 Employer National Insurance contributions until April 2022.
On 30 November, Veteran C enters into an employment with Employer B. Employer B needs to establish that they are a qualifying veteran and determine the start date of Veteran C’s first day of civilian employment (in this scenario, with Employer A). Employer B can then claim this relief until 29 August 2022.
Record keeping
Employers must check and retain records that show that an individual is a qualifying veteran, and the start date of the veteran’s first civilian employment.
In order to claim relief, employers will need to demonstrate that they took reasonable care to confirm the veteran’s eligibility and must be able to confirm, where applicable, the start date of the veteran’s first civilian employment.
An employer can request any of the following documents during the onboarding process, to show that the veteran qualifies:
- Veteran’s Identification card (which marks their time in the armed forces)
- Letter of employment or contract with HM Armed Forces
- Veteran’s P45 from leaving HM Armed Forces
- Discharge papers from HM Armed Forces
- The employment contract of an individual’s previous employment (in order to determine the start date)
Records will need to be retained that show the employee’s eligibility for the relief for a minimum of three years after the end of the tax year to which they relate.
Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information.