National Insurance for under 21s
18 March 2015, Auto Enrolment, Charities, Companies, Employer, Sole Traders
April 2015 changes to National Insurance
From 6th April 2015 employers will no longer have to pay National Insurance for under 21s. To take advantage of this change, you will need to make sure your payroll software is up to date, but you will also need to use one of the new National Insurance category letters that have been set up.
HMRC guidance
The HMRC guidance on the abolition of employer National Insurance for under 21s has the full details of the new system for 2015-16. Every employee is allocated a category letter as part of payroll processing. The category letter depends on a number of factors including the age of the employee and whether or not they are currently contracted out of the state second pension.
7 new category letters will be introduced in April. If you have employees who are older than 16, but younger than 21 you should use one of the following letters:
Category letters - National Insurance for under 21s
| Category letter | Description |
|---|---|
| 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 |
| I | Contracted-out salary related standard rate contributions for employees under 21 |
| K | Contracted-out salary related deferred rate contributions for employees under 21. |
Time to check your employee records
It is the responsibility of each employer to ensure they report the correct category letter. To do this you will need to hold your employee’s correct date of birth. You should have proof of identity of all your employees as a matter of course. For any employer to claim the 0% rate of National Insurance for under 21s they will need to have proof of age for anyone in this age range. The category of worker for Auto Enrolment is also based on the age of employees, even if all your employees are over 21 you should still ensure that your payroll software records the correct date of birth for everyone you employ.
Proof of age can be evidenced by a copy of a passport, driving licence or birth certificate.
What you can tell your employees
Employees will continue to pay the standard rate of primary Class 1 NICs through their salary. They will not see any reduction in their payments. It is employers who will benefit from this change. An employee’s entitlement to contributory social security benefits, including State Pension will not be affected. Existing employees may notice a change to the National Insurance category letter recorded on their payslip.
How Alterledger can help
If you are thinking of outsourcing your payroll processing, April is a good time to make the change. The 6th April is the start of a new tax year and also the date changes come into force for the abolition of employers National Insurance for under 21s. With pension Auto Enrolment on the horizon you are likely to need assistance with your payroll. Alterledger can help plan for your staging date, set you up with a pension scheme or take over the monthly payroll processing to give you more time to run your business.
