Apprentices under 25 NICs rules from April 2016
1 Background
Section 9B of the Social Security Contributions and Benefits Act 1992 (SSCBA) provides for a zero-rate of Class 1 secondary contributions for certain apprentices from 6 April 2016.
The age group currently specified is for those apprentices under the age of 25. This legislation also provides Treasury with the power to alter the age that an apprentice must be in order to be a relevant apprentice.
The rate of secondary Class 1 contributions for the 2015/16 tax year is 13.8% on earnings above £156 per week or its prescribed equivalent period. From 2016/17 tax year section 9B SCBA reduces that rate to 0% for those apprentices who are under the age of 25 with earnings below an Apprentices Upper Secondary Threshold (AUST). Like any other National Insurance threshold and limit this will be set as a weekly amount, with provision made to prescribe equivalents for those who are paid otherwise than weekly.
Ministers have announced that the value of the AUST for apprentices under 25 in the 2016/17 tax year will be the same as the Upper Earnings Limit (UEL). The UEL for the 2015/16 tax year is £815 per week. There is, however, no statutory link between the AUST and the UEL, therefore in future the UEL and AUST could vary, although we believe this to be highly unlikely (similar to the zero-rate for individuals under the age of 21). There is no reduction in the rate of Class 1 secondary contributions on earnings above the AUST.
This policy has not however, removed the role of the secondary contributor. They are still to be regarded as secondary contributors and will be legally required to fulfill any other obligations (for example administering statutory payments) imposed by statute, even though the amount of the contribution they will be required to pay is 0% on earnings up to the AUST.
Other responsibilities which will fall to the employer include:
Making sure they hold a correct date of birth for the employee
Making sure that they can evidence the fact that the employee is an apprentice
Two new National Insurance contribution (NICs) category letters are to be used for apprentices under 25:
Category H – apprentice under 25, and Category G – apprentice Mariner under 25.
If an apprentice is aged under 21 category H (apprentice under 25) should be used rather than category M (under 21). This enables us to monitor the amount of employers using the Apprentice secondary Class 1 zero-rate relief. These changes do not alter the structure of National Insurance in any other way. Primary Class 1 contributions will remain unaltered.
2 Mistimed Payments
The structure of National Insurance although incorporating the changes introduced by the Apprentice under 25 policy will continue in its current form. There are no changes to the rules which set out how Class 1 NICs are assessed. Instances of bonus pay, holiday pay and other mistimed payments will continue to follow the same calculation principles as they do now.
To illustrate this, various examples are provided below on common changes to normal pay, including where payments are mistimed, a birthday occurs and an apprenticeship starts and ends.
3 Scenario (2016/17 tax year)
Eve is an architect working for ABC Architects Ltd.
Her date of birth is May 25th 1995 and she is currently 20 years old.
She is paid a salary of £24,000 per year - the equivalent of £2,000 per month which she receives on the last working day of each month.
ABC is taken over by XYZ Architects Ltd in July 2016.
In August XYZ offers her an Apprenticeship to train to become a master architect which she accepts. She will retain her existing salary of £2,000 per month and begins on 10th August 2016.
She receives a Profit Share bonus of £15,000 in September following ABC’s takeover by XYZ.
To celebrate her new Apprenticeship she intends to take four weeks leave to have an extended holiday. She has requested to have her January salary paid with her December salary.
On 15th March 2017 she finally accepts that she will never be a master architect and she reverts to her previous job on her previous wage: of£2,000 per month.
The monthly prescribed equivalents for the tax year 2015/16 are:
Primary Threshold (PT) £672
Secondary Threshold (ST) £676
Apprentice Upper Secondary Threshold (AUST) £3532
Upper Earnings Limit (UEL) £3532
4 Calculations
Month 1 (Friday 29th April 2016)
NICs category letter M (Eve is under 21) April 2016 earnings £2,000
Primary £2000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 0% = Nil Monthly NICs = £159.36
Month 2 & 3 no change
Month 4
NICs category letter A (Eve has celebrated her birthday and is now 21 years old) Earnings £2,000 Primary £2000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 13.8% = £182.71 Monthly NICs = £342.07 Month 5
NICs category letter H (Eve is an Apprentice when her August salary is paid so all earnings are applied to category letter H)
1st – 9th August £581 (earnings as an architect) 10th – 31st August £1,419 (earnings as an apprentice) Earnings £2,000 Primary £2000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 0% = nil
Monthly NICs = £159.36
Month 6 (Friday 30th September 2016)
September 2016 earnings £17,000 (includes £15,000 profit share) When added to her September salary, the profit share takes Eve’s total earnings for June over the AUST. Her employer is required to pay secondary NICs on earnings of £13,468; (the amount above the AUST). Secondary
NICs are payable in September, even though in total Eve’s earnings for the year will be less than the annual equivalent of the AUST (£42,385).
Earnings £17,000
Primary £3532 minus £672 = £2860 x 12% = £343.20 Additional rate £17,000 minus £3532 = £13,468 x 2% = £269.36 Secondary £17,000 minus £3532 = £13,468 x 13.8% = £1858.58 Monthly NICs = £2471.14 Month 7 & Month 8
NICs category letter H Earnings £2,000
Primary £2000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 0% = Nil Monthly NICs = £159.36 Month 9 (Friday 30th December 2016)
NICs category letter H
Earnings £4,000 (January’s salary paid in December as advanced holiday pay)
Employer uses Method A (regulation 7 of Social Security (Contributions) Regulations 2001 to calculate advanced holiday pay
December Primary £2000 minus £672 = £1328 x 12% = £159.36 January Primary £2000 minus £672 = £1328 x 12% = £159.36 December Secondary £2000 minus £676 = £1324 x 0% = Nil January Secondary £2000 minus £676 = £1324 x 0% = Nil
Monthly NICs = £318.72 Eve has been paid her holiday pay in advance. To calculate NICs correctly, the holiday pay must be treated as if it were paid at the correct time – that is, as if it were paid on the last working day of January rather than added to December’s salary
Month 10 Earnings nil
Month 11 NICs Category letter H Earnings £2,000
Secondary £2000 minus £676 = £1324 x 0% = Nil Monthly NICs = £159.36 Month 12
NICs category letter A (Eve has finished her apprenticeship when her March salary is paid so all earnings are applied to NICs category letter A)
1st – 15th March
£968 (earnings as an apprentice) 16th – 31st March
£1,032 (earnings as an architect) Total March earnings £2,000
Primary £2,000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 13.8% = £182.71 Monthly NICs = £342.07
5 Secondary Class 1 contributions saved in the 2016/17 year
Month NICs Category
Pre Apprentice U25 secondary contribution
calculation
Post Apprentice U25 secondary contribution saving (£) 1 M (under 21) £2000 minus £676 = £1324 x 0.0% (Under 21) = £0.00
Nil (secondary NICs was already zero due to Under
21 measure) 2, 3 & 4 A £2000 minus £676 = £1324 x 13.8% = £182.71 Nil 5 M (apprentice) £2000 minus £676 = £1324 x 13.8% = £182.71 182.71 6 M £3532 minus £676 = £2856 x 13.8% = £ 394.13 394.13 7 & 8 M £2000 minus £676 = £1324 x 13.8% = £182.71 x2 365.42 9 & 10 M £2,000 minus £676 = £1324 x 13.8% = £182.71 x2 365.42 11 M £2,000 minus £676 = £1324 x 13.8% = £182.71 182.71 12 A £2,000 minus £676 = £1324 x 13.8% = £182.71 Nil Total 1490.39
XYZ Architects Ltd have saved £1490.39 of Class 1 secondary NICs in this example.
6 Mistakes
There will be occasions when you discover that a date of birth you have recorded for an Apprentice is incorrect. The result of your correction will depend upon whether the correct date of birth makes your employee younger than 25 years of age or older. Employers must remember that if the error covers several months, they must recheck each earnings period separately.
For example, Ron, an apprentice plumber, was born 25th May 1990. He incorrectly informs you that his date of birth is 25th May 1991. The relief from section 9B Social Security and Contributions Act 1992 to reduce the rate of secondary contributions for apprentices to 0% would not apply to Ron as he is not under 25 years of age at the beginning of the 2016/17 tax year.
Month 1
April 2015 earnings £2000
Primary £2000 minus £672 = £1328 x 12% = £159.36 Secondary £2000 minus £676 = £1324 x 0% = £0.00
Monthly NICs = £159.36 In month 2 Ron invites you to his 26th birthday party. It is at this point that the mistake is discovered regarding his date of birth and the realisation that secondary contributions of £182.71 (1324 x 13.8%) have been underpaid. To rectify this mistake you must update your records with Ron’s correct date of birth and make sure this is the date of birth reported on his FPS. Then using the existing principles to report mistakes, you can either
correct the error by using revised year to date figures on your next regular FPS – this is often the easiest way to handle the correction show the adjustment by submitting an additional FPS for the pay period
for the employee that the mistake relates to.
The converse will apply if you were mistakenly informed that Ron’s date of birth excluded him from the relief to reduce the rate of secondary contributions to 0%. The steps mentioned above should be used to rectify the mistake. It is very important that you obtain accurate information from your employees.
7 Other scenarios
There are other scenarios that can be covered in these examples, I would greatly appreciate your feedback on what you what like to see included.
Mick Nicholson
