Freeport National Insurance Contribution (NIC) relief
The new NIC Bill confirms how relief for freeport employers in Great Britain will operate. Similar rules are expected for Northern Ireland.
The new NIC Bill confirms how relief for freeport employers in Great Britain will operate.
From 6 April 2022, employers operating in a freeport tax site will pay zero percent Class 1 employer’s NIC in relation to newly created jobs. In summary, this relief will apply to earnings of up to £25,000 per annum paid to each qualifying employee during the first three years of their employment. The relief will be available in relation to new employments that begin on or before 5 April 2026 but may be extended following a review. The recently published NIC Bill 2021 sets out the detailed conditions for this relief – and when it may be lost – for freeport employers in Great Britain. Similar provisions are expected to apply to freeport employers in Northern Ireland. Employers should assess what implications the new relief might have for their business.
How will freeport relief work?
Where the new relief applies, Class 1 employer’s NIC will be due at zero percent on each eligible freeport employee’s earnings between the standard secondary threshold and the freeport upper secondary threshold (UST).
The freeport UST is expected to be set at £25,000 on an annualised basis. Any earnings above the freeport UST will be subject to employer’s NIC at the usual rate (currently 13.8 percent).
Provided the qualifying conditions continue to be met, the zero rate will apply to each eligible freeport employee’s earnings for the first three years of their employment.
Based on the standard secondary threshold for 2021/22 (£8,840 on an annualised basis), the maximum employer’s NIC saving would therefore be £6,690 per employee over the three-year period.
Where an eligible freeport employee is either below 21 or an apprentice under 25, the relevant age-related employer’s NIC relief, rather than freeport relief, will apply unless the employer elects otherwise.
When will freeport conditions be met?
In summary, freeport relief will apply to earnings paid to an employee if:
- They begin a new employment with a freeport employer on or after 6 April 2022 but no later than 5 April 2026; and
- The freeport employer reasonably expects them to spend at least 60 percent of their working time at a single freeport tax site in which the employer has business premises.
However, earnings will not be eligible for freeport relief if the individual was previously employed by the freeport employer, or by a connected person, at any time during the two-year period that ends with the date on which the new freeport employment begins.
Additionally, freeport relief will not be available in relation to artificial avoidance arrangements.
Can the freeport relief be lost?
Freeport relief will cease if it’s no longer reasonable for the employer to assume the employee will spend at least 60 percent of their working time at the employer’s premises in a single freeport tax site (e.g. if they were to split their time equally between two freeport tax sites).
However, it’s possible for an employee who ceases to qualify for freeport relief to qualify again if there’s a substantial change in their working arrangements.
To demonstrate entitlement to freeport relief, employers will therefore need to be able to monitor freeport employees’ working patterns and satisfy HMRC that they re-assess eligibility where there is a relevant change.
What should employers do?
Employers should assess what impact freeport relief might have on their workforce planning and what changes might be necessary to systems and processes to support any claims.
See our overview for more information on UK Freeports.
