To encourage employers to employ armed forces veterans, a new relief was introduced with effect from 6 April 2021 where an employer took on an armed forces veteran in the first year of their first civilian employment since leaving the armed forces.
Nature Of the Relief
Under the relief, an employer only pays secondary Class 1 National Insurance contributions on earnings to the extent that they exceed the veteran’s upper secondary threshold where the veteran is in the first year of their first civilian employment since leaving the armed forces. The secondary rate is 13.8% for 2021/22 and 15.05% for 2022/23. Contributions are payable at a zero rate on earnings that fall between the secondary threshold and the veteran’s upper secondary threshold.
To qualify for the relief, the employee must have served at least one day on the regular armed forces (a single day undertaking basic training counts). The employee must also be in their first civilian job since leaving the armed forces – it does not matter when they left.
The relief is available from 6 April 2021 onwards for the first year of the veteran’s first post-forces civilian employment. Where the employment commenced after 6 April 2020, the relief period runs from 6 April 2021 to the first anniversary of the employment start date. If the veteran has more than one job in this period, all employers can benefit. Likewise, if the veteran changes jobs before the end of the relief period, the new employer is eligible for the relief until the end of the relief period.
The relief only applies to employer’s contributions; the armed forces veteran pays employee contributions on earnings above the primary threshold as for other employees.
Giving Effect to The Relief
Although the relief applies from 6 April 2021, employers were required to pay secondary contributions as normal on the veteran’s earnings for 2021/22 where these exceeded the secondary threshold. They can claim the relief retrospectively from 6 April 2022 through the payroll via Real Time Information.
To claim the relief for 2021/22 through the payroll, the employer will need to submit a revised FPS after 6 April 2022 using the category letter V where the employee would otherwise have category letter A (standard contributions). From 2022/23 the relief is given through the payroll. Category letter V should be used where A would otherwise apply. At the end of the relief period, the veteran’s category letter should revert to A.
If the veteran would otherwise have a category letter other than V (for example, if they have reached state pension age), employers will need to write to HMRC to claim the relief due for 2021/22.
Partner note: National Insurance Contributions Act 2022, ss. 5, 6.