National Insurance Contributions Act 2022 says that, since 6 April 2022, class 1 secondary (employer) national insurance contributions (NIC) are charged at zero % on earnings for qualifying employees working in a freeport site, up to the freeports upper secondary threshold (FUST) of £25,000.
HMRC’s guidance for software developers (booklet EB5 2022-23) tells payroll IT developers to insert a breakpoint for FUST when calculating NIC in respect of all employees, (ie, not just qualifying freeport employees), and to do so for both primary (employee) and secondary NIC.
By contrast, The examples on how to calculate class 1 NIC in CWG2 2022-23 Employer further guide to PAYE and NIC 2022/23 para 3.9.7 NIC: zero rate of secondary rate contributions for employees working in a Freeport tax site includes the FUST only for secondary class 1 contributions for qualifying freeport employees.
HMRC’s other guidance – for instance, the chart at page eight of CA38 2022-23 showing earnings limits and NIC rates – includes FUST only for secondary class 1 contributions. This chart could also be interpreted as including the FUST for all table letters (ie, not just for qualifying freeport employees).
However, CWG2 2022-23 confirms at para 3.9.7 that: “These changes do not alter any of the rules for calculating National Insurance other than by using the Freeport rate where appropriate” and “Primary Class 1 contributions will remain unchanged”. This statement and the example appear to accord with the legislation.
The Tax Faculty noted that HMRC’s guidance on how to calculate class 1 NIC is inconsistent in What is changing for employers from April 2022.
Any differences arising as a result will add up to a few pence, depending on whether or not a breakpoint at the FUST is applied in calculations of:
- primary and secondary class 1 NIC for non-freeport employees; or
- primary NIC for freeport employees.
HMRC will accept either calculation for primary or secondary contributions, (ie, with or without a breakpoint at the FUST, undertaken using the exact percentage basis method or using the table method), for non-freeport employees. For qualifying freeport employees, a breakpoint at the FUST will always be needed in the secondary class 1 NIC calculation.
ICAEW Know-How from the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
The future of tax after COVID
As digital technologies transform society, the UK government is grappling with balancing the books while ensuring its tax system is fit for purpose. Join us as we take a look at the issues and challenges facing the tax system.Read more
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly enewsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.