Employers that employ anyone aged under 21 years old (and over 16) are reminded to ensure they are using the correct National Insurance category letter to benefit from the new initiative. Since 6 April 2015, employers with employees under 21 years old are no longer required to pay Class 1 NICs on earnings up to the Upper Secondary Threshold (UST) for those employees.
The zero rate does not apply to Class 1A or Class 1B NICs. Class 1 secondary NICs will apply if the employee is earning above the UST. Employees will continue to pay the standard rate of primary Class 1 NICs through their salary.
There are seven National Insurance categories for employers to use when assessing their employees’ secondary NICs. The seven categories are:
- M – not contracted-out standard rate contributions
- Z – not contracted-out deferred rate contributions
- Y – mariners not contracted-out standard rate contributions
- P – mariners not contracted-out deferred rate contributions
- V – mariners contracted-out salary related contributions
- I – contracted-out salary related standard rate contributions
- K – contracted-out salary related deferred rate contributions
Three of the new letters (V, I and K) will be removed in April 2016 in line with the ending of ‘contracted-out’ status in relation to salary-related occupational pension schemes. It is the employer’s responsibility to ensure the correct category letter has been applied based on the age and circumstances of the employee. The categories will also need to be monitored for age and salary changes.
Source: HM Revenue & Customs
