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Tax Factor

17 November 2010

The National Insurance contributions holiday

The Chancellor announced an employer’s NIC holiday in the emergency budget on 22nd June 2010. In this article we take a look at which employers can benefit and how they should go about making a claim.

What is the National Insurance (NIC) holiday?

The NIC holiday is available from 22 June 2010 until 5th September 2013 to new businesses who are also employers and who start up outside Greater London, the South East and the Eastern Regions of the UK. The NIC holiday applies to earnings paid to employees after 6th September 2010 and is limited to the first 10 employees taken on in the first year of business. The relief is limited to a maximum of £5,000 of employer’s NIC incurred in the first twelve months of each employee’s employment (i.e. a total maximum relief of £50,000).

What is a new business?

The NIC holiday applies to genuinely new businesses which start in the period 22nd June 2010 to 5th September 2013 outside of the excluded regions. The regulations have a number of revisions to prevent a business ceasing and restarting or restructuring itself in order to take advantage of the NIC holiday when in fact there is actually no new business.

Are there restrictions on the legal form of the new business?

The NIC holiday is available to new businesses operated by sole traders, partnerships or companies. It includes new trades, professions or vocations, new charities and new property and investment businesses. Public bodies and individuals employing domestic staff will not qualify.

Which are the excluded regions?

The NIC holiday is not available where the principal place at which the new business is carried on when it starts is in any of the following regions:-

Greater London

The Eastern Region comprising:

a) the counties of Bedford, Cambridgeshire, Central Bedfordshire, Essex, Hertfordshire, Norfolk and Suffolk;

b) the non-metropolitan districts of Luton, Peterborough, Southend on Sea and Thurrock.

The South East Region comprising:

a) the counties of Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Surrey and West Sussex;

b) the non-metropolitan districts of Bracknell Forest, Brighton and Hove, Medway, Milton Keynes, Portsmouth, Reading, Slough, Southampton, West Berkshire, Windsor and Maidenhead and Wokingham.

Which employees are covered by the NIC holiday?

The first ten qualifying individuals that a new business employs in its first year of business following start up are within the scheme. A qualifying employee is a full, part-time or casual employee. Directors are included (even if unpaid) as are employees earning below the current earnings threshold of £110 per week. In the light of these rules, new businesses need to plan the order of recruitment with senior and management staff taken on within the first ten employees.

Are employee benefits covered by the NIC holiday?

Employer’s NIC on benefits declared on forms P11D and in any PAYE Settlement Agreement are not included within the NIC holiday.

Does a new EU business with UK employees qualify?

A new EU business which sends employees to work in the UK who are within the NIC Scheme, and who work outside of the excluded areas can potentially claim the NIC holiday.

What do new businesses need to do?

The NIC holiday is not an automatic relief and new businesses need to apply to HMRC by completing an application form. The form includes a request for information about State Aid that the new business may have received as this may exclude the employer from the NIC holiday.

Most applications will be made online and the form is available at www.hmrc.gov.uk/paye/intro/nics-holiday/how-to-apply.htm. HMRC will send an e-mail to confirm that the NIC holiday can begin to be operated.

Is the NIC holiday enacted in legislation?

Currently draft legislation has been published and this is expected to receive Royal Assent in early 2011. If the legislation is never enacted for whatever reason then the NIC relief already obtained will be repayable to HMRC by 19th April 2011.

If you would like to know more about the NIC holiday or how to apply then please contact any Wilkins Kennedy office for further information and advice.