Commentary on provisions of Bill
Part 1: Secondary Class 1 Contributions
Freeports
Clause 1: Zero-rate contributions for employees at freeport tax sites: Great Britain
28 Clause 1(1) states that this relief applies when secondary Class 1 NICs are due from an employer other than a public authority and the conditions set out in clause 2 are met. The term "public authority" is defined in clause 13 of the Bill. This clause also specifies that an employer must elect to apply this relief in circumstances where they may also qualify for other NICs reliefs (under 21, under 25 apprentices and armed forces veterans).
29 Clause 1(2)(a) states that the rate for this relief is 0% and applies up to the Upper Secondary Threshold (UST).
30 Clause 1(2)(b) states that for earnings above the UST, the secondary percentage NICs rate (currently 13.8%) applies.
31 Clause 1(3) states that the UST (or the prescribed equivalent) will be set by statutory instrument under a power at clause 8.
32 Clause 1(4) states that a person is still regarded as liable for secondary Class 1 NICs even though the amount of the contribution is nil because the secondary percentage is 0%. This provision ensures that, whilst the requirement to pay secondary Class 1 NICs in respect of relevant earnings paid to Freeport employees is removed, liability for such contributions remains. As a result, the new zero-rate does not affect other legislation which relies on the existence of a secondary contributor, including the obligation to make statutory payments to employees such as Statutory Sick Pay and Statutory Maternity Pay.
33 This relief will be administered through PAYE and Real Time Information (RTI) returns, thus providing a real time relief. Clause 1(5) and clause 1(6) provide the Treasury with the power to make provisions about circumstances where this relief would not apply until the tax year has ended.
Clause 2: Freeport conditions
34 Clause 2(1) sets out the conditions that must be met to qualify for the relief under Clause 1.
35 Clause 2(1)(a) sets out that the start date for the Freeport employment must be between 6 April 2022 and 5 April 2026.
36 Clause 2(1)(b) provides that the relief will apply for three years per earner starting from the first day of employment subject to subsection (6).
37 Clause 2(1)(c) specifies that relief can only be claimed for contributions paid in respect of tax weeks in a qualifying period, and that the whole of a tax week must be within that period. The qualifying period is defined at subsection (3).
38 Clause 2(1)(d) states that, at the time the qualifying period begins, a Freeport employer must reasonably expect that the earner will spend 60% or more of their employed time (defined by subsection 4(a)) in a single Freeport Tax Site in which the Freeport employer must also have business premises.
39 Clause 2(2) stipulates that an earner cannot have been employed by the Freeport employer or a person connected with the employer in the 24 months prior to the employment. Connected person is defined by reference to section 993 of the Income Tax Act 2007.
40 Clause 2(3)(a) specifies that the qualifying period begins with the start of the employment, or a substantial change in the earner’s circumstances. Subsection (3)(b) specifies that the qualifying period ends with either the end of the employment, a substantial change in the earner’s working arrangements or the relevant end date of the relief. The effect of subsection (3) is that an employer is required to make an assessment at the start of the employment and maintain that assessment until there is a substantial change in the earner’s working arrangements at which point an employer must reassess. This assessment must be made each time there is a substantial change in the earner’s working arrangements.
41 Clause 2(4)(a) defines employed time as the time that an employee is expected to provide services to the employer, and that includes periods of leave.
42 Clause 2(4)(b) has the effect of disregarding periods of leave for the 60% test.
43 Clause 2(4)(c) clarifies that it does not matter if the earner provides services under multiple contracts provided that the employment does not cease.
44 Clause 2(4)(d) specifies that the employment also ceases to qualify for this relief when the employer’s expectation that the earner spends 60% of their employed time in the Freeport ceases to be reasonable. Note, this does not preclude the employment from qualifying for this relief in future if there is a substantial change in the earner’s working arrangements.
45 Clause 2(5) has the effect of ensuring that where the employer and the secondary contributor are not the same person, then the secondary contributor, instead of the employer, must meet the condition at subsection (1)(d) (the assessment of employed time in the Freeport, see paragraph 38). Both the employer and secondary contributor need to meet the condition at subsection (2) (connected person rule, see paragraph 39).
46 Clause 2(6) provides that the latest date that earnings may qualify for this relief is the earlier of:
a. The last day of the three-year period beginning with the day after the date specified in subsection (1)(a)(ii); and
b. 5 April 2031.
This allows for the full qualifying period to be utilised by employers if this relief is extended beyond 5 April 2026, but has the effect of not extending the qualifying period beyond 5 April 2031.
Clause 3: Freeport conditions: supplementary
47 Clause 3(1) provides the Treasury with a regulation-making power to extend the latest date (set out at clause 2(1)(a)(ii)) on which an earner can begin their employment in order for their employer to qualify for the relief for Freeport employees. The Treasury may extend this date to no later than 5 April 2031.
48 Clause 3(2) provides the Treasury with a regulation-making power to provide for circumstances in which a Freeport condition is to be treated as being met. This has the effect of making the relief available in circumstances that it would otherwise not be.
49 Clause 3(3) provides the Treasury with regulation-making powers to make other changes in relation to the Freeport conditions in clause 2, including adding, removing or altering qualifying conditions for this relief.
50 Clause 3(4) sets out what the power at clause 3(3) can, amongst other things, be used for:
a. to make provisions about circumstances in which a condition is treated as not being met;
b. to add conditions relating to accounts or other records; and
c. to add conditions requiring a person to take steps specified in the regulations.
51 Clause 3(5) provides that regulations made under clauses 3(2) or 3(3) may make provision by reference to sectors of the economy or to descriptions of employer, earner or employment.
52 Clause 3(6) provides that regulations made under clauses 3(2) or 3(3) may amend Part 1 of the Bill.
Clause 4: Anti-avoidance
53 Clause 4 states that this relief cannot be claimed if an avoidance arrangement has been used and defines what is meant by an avoidance arrangement.
Clause 5: Zero-rate contributions for employees at freeport tax sites: Northern Ireland
54 Clause 5 provides the Treasury with a regulation-making power to provide for a Freeport secondary Class 1 NICs relief in NI.
Veterans
Clause 6: Zero-rate contributions for armed forces veterans
55 Clause 6(1), (2) and (4) provides for a new zero-rate of secondary Class 1 contributions up to a UST for tax years 2022-23 to 2023-24 if the veteran conditions in clause 7 are met. Earnings above the UST will be liable to secondary Class 1 NICs at the secondary percentage (currently 13.8%).
56 Clause 6(1)(d) specifies that an employer must elect to apply this relief if the employment also qualifies for other NICs reliefs (under 21, under 25 apprentices and Freeports).
57 Clause 6(3) specifies that the UST for this relief is the one specified in regulations under clause 8.
58 Clause 6(5) specifies that the relief is available for the 2021-22 tax year retrospectively. In practice, this means that employers need to pay secondary Class 1 NICs as if the relief did not apply, then from April 2022 they can claim the relief for the earnings in the 2021-22 tax year.
59 Clause 6(6) provides the Treasury with regulation-making powers to add to the tax years set out in clause 6(4). This allows the relief to be extended beyond 5 April 2024.
60 Clause 6(7) states that a person is still to be regarded as liable for secondary Class 1 NICs even though the amount of the contribution is nil because the secondary percentage is 0%. This provision ensures that, whilst the requirement to pay secondary Class 1 NICs in respect of earnings paid to veterans is removed, a technical liability for such contributions continues to arise. As a result, the new zero-rate does not affect other legislation which relies on the existence of a secondary contributor, including the obligation to make statutory payments to employees such as Statutory Sick Pay and Statutory Maternity Pay.
61 This relief will be administered through PAYE and RTI returns, thus providing a real time relief. Clause 6(8) provides the Treasury with the power to make provisions about circumstances where this relief would not apply until the tax year has ended.
Clause 7: Veteran conditions
62 Clause 7(1) sets out the conditions that need to be met for the armed forces veterans relief.
63 Clause 7(1)(a) confirms that, to qualify for this relief, the earner is required to have served for at least one day in the regular forces. This is defined at clause 13.
64 Clause 7(1)(b) states that only employment in a civilian capacity qualifies for this relief.
65 Clause 7(1)(c) states that this relief is available for one year beginning with the earner’s first day of civilian employment after leaving the armed forces.
66 Clause 7(2) (in relation to clause 7(1)(c)) provides that the first civilian employment for a veteran can commence before the introduction of this relief on 6 April 2021. Where this is the case, the 12-month period will commence from the first day of the employment, but the relief will only be available from 6 April 2021 for the remainder of that 12-month period.
Upper secondary threshold
Clause 8: Upper secondary threshold for earnings
67 Clause 8(1) provides that a UST for secondary Class 1 NICs specifically in relation to veterans and Freeport earners will be set for every tax year. This clause allows for different USTs to be set for veterans and Freeport employees.
68 Clause 8(2) provides the Treasury with a regulation-making power to specify the amounts of the veterans UST and the Freeports UST.
69 Clause 8(3) specifies that the veterans UST for the 2021-22 tax year, and the Freeports and veterans USTs for the 2022-23 tax year, can be set retrospectively.
70 Clause 8(4) applies the regulation-making power in section 5(4) to (6) of SSCBA 1992 for the purposes of prescribing equivalents to the UST for earners paid otherwise than weekly.
Clause 9: Consequential amendment
71 This clause amends section 100(6) of the Finance Act 2016 (apprenticeship levy) to make sure that where a secondary contributor does not make any secondary contributions in respect of an earner because of the Freeports or veterans relief, the earner’s earnings are still taken into account for the purposes of the apprenticeship levy.
Part 2: Class 4 Contributions
Clause 10: Treatment of self-isolation support scheme payments
72 Clause 10(1) provides an exemption for payments made under a self-isolation support scheme by providing that they are not to be taken into account for the purposes of computing profits liable to Class 4 NICs for the purpose of SSCBA 1992 and SSCB(NI)A 1992. This will also ensure that such payments will not be taken into account for the purposes of Class 2 NICs.
73 Clause 10(2)(a) to (c) specifies the self-isolation support schemes that are exempt.
74 Clause 10(2)(d) provides that the Treasury may designate further schemes that correspond or are similar to schemes specified in clause 10(2)(a) to (c).
75 Clause 10(3) provides that the exemption has retrospective effect for the tax year 2020-21 and has effect for subsequent tax years.
Part 3: Disclosure of Avoidance
Clause 11: Disclosure of contributions avoidance arrangements
76 This clause widens the existing regulation making power in section 132A(1) SSAA 1992 so that it may impose reporting requirements in relation to arrangements that aim to avoid NICs. This amendment will enable regulations to be made to mirror the amendments to the DOTAS procedures which are included in the Finance Act 2021.
Part 4: General
Clause 12: Regulations
77 Clause 12(1) provides for regulations under this Act to be made by statutory instrument.
78 Clause 12(2) specifies that regulations made under the Act are subject to the negative procedure except for:
a. section 3(3),
b. section 5, and
c. section 8,
which are subject to the affirmative procedure.
79 Clause 12(4) provides that subsections (3) to (5) of section 175 of the SSCBA 1992 (regulations etc) apply to regulations under this Act as they apply generally to regulations under that Act.
Clause 13: Interpretation etc
80 This clause defines various terms used in the Act.
Clause 14: Short title
81 This clause provides for the Act to be known as the National Insurance Contributions Act 2021.