Employees Under 21: There’s Good News and There’s Bad News…
The Good News
From the 6 April 2015, the rate of employer Class 1 secondary NICs for employees under the age of 21 will be 0% up to the new ‘Upper Secondary Threshold’ (UST) which will be the same as the Upper Earnings Limit (UEL) for 2015/16. Earnings above this threshold will have employers NIC applied to them as usual.
The NIC on expenses and benefits (Class 1A) are not affected by this change and should be collected and reported as normal.
The Bad News
Just to confuse matters, for employees who are in the affected age range there will be a range of new NI category letters to use when assessing secondary NIC's in respect of the earnings paid to these employees. From 6 April 2015, when submitting PAYE information for employees under the age of 21 you will need to use the new category letter appropriate to the individual. It is your responsibility as an employer to ensure that you are using the correct code – therefore you must ensure that you have your employees’ date of birth on file. I would hope that payroll software will warn you if your employee moves into a new age bracket – but that will depend on your software and my advice is to make sure you know when your employee will change category and diarise it or set yourself a reminder.
The 'exciting' new letters are:
M – Not contracted-out standard rate contributions for employees under 21
Z – Not contracted-out deferred rate contributions for employees under 21
Y – Mariners not contracted-out standard rate contributions for employees under 21
P – Mariners not contracted-out deferred rate contributions for employees under 21
V – Mariners Contracted-out Salary Related contributions for employees under 21 (This will become redundant in April 2016)
I – Contracted-out Salary Related standard rate contributions for employees under 21 (This will become redundant in April 2016)
K – Contracted-out Salary Related deferred rate contributions for employees under 21. (This will become redundant in April 2016)
The point of this, rather complicated, change to employers national insurance is to reduce levels of unemployment in under 21’s. George Osborne stated in his 2013 Autumn Statement that “Employer NI contributions will be removed altogether on a million and a half jobs for young people. We’re not going to leave young people behind as the economy grows. We are going to have a responsible recovery for all.
Although the exact figures are not available yet, if you employ someone who is under 21 and earning £1,500 per month and your Employer’s Allowance is already being used up elsewhere, you will save over £1,000 a year. In my opinion, that saving, along with the £2,000 employer’s allowance, is a great boost for employers.\n\nIf you have any questions about the above, please contact me, I’d be happy to discuss this in further detail.