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Regional Employer NICs holiday

In the Emergency Budget, the Chancellor unveiled plans to introduce a Regional Employer National Insurance Contributions (NICs) Holiday for new businesses. It is hoped the initiative will encourage new businesses to start up in areas of the country that have traditionally relied heavily on public sector employment.

Here we examine the scheme in more detail and consider the implications for businesses. We also look at the increased national insurance rates, and consider strategies to help minimise your NICs liability.

What is the scheme?

The Regional Employer NICs Holiday scheme provides new businesses in certain areas of the country with a break from paying employer NICs in respect of the first 10 employees that they take on in the first year of business. The scheme was launched on 6 September 2010 and runs for three years, ending on 5 September 2013.

The scheme's voluntary nature means that the holiday is not applied automatically and new businesses wishing to take part must apply to do so.

The scheme is only open to businesses that meet certain conditions. To be eligible:

a sole trader, partnership or company must start a new business in the period 22 June 2010 to 5 September 2013 inclusive;
the principal place at which the new business is carried on when it is started is not in an excluded region (Greater London, the East and South East); and
qualifying employees are engaged for the purposes of the new business.

What is a new business?

Most businesses that are genuinely new will qualify, providing that the other criteria are met. However, anti–avoidance rules apply to prevent businesses that are not genuinely new reorganising to take advantage of the holiday. These rules act to exclude existing businesses taken over by someone else, and the transfer of part of an existing business to a new company from benefiting from the holiday.

Business location

A new business can only apply to take part in the scheme if its principal place of business is in a designated area. The included countries and regions are:

Northern Ireland
Scotland
Wales
East Midlands
North East
North West
South West
West Midlands
Yorkshire and Humber

The business must continue to operate in a designated area. If a business starts up in a designated region, but subsequently moves into an excluded region during either the initial period or the holiday period in relation to a qualifying employee, the benefit of the scheme ceases immediately.

Qualifying employees

The scheme relieves employers of the need to pay employer NICs in respect of the first 10 qualifying employees (subject to the maximum saving per employee) employed during the first year of the business. In determining whether the limit of 10 has been reached, it is necessary to take account of all employees, including directors, and those who work part–time or who earn less than the secondary NIC threshold (£148 per week for 2013–14).

Possible savings

The scheme offers new businesses the opportunity to save up to £50,000 in employer NICs. There is no limit on the amount that can be paid to a qualifying employee under the scheme, although the relief available in respect of any one employee is capped at £5,000. For 2013–14 this means that an employer can obtain relief in full for the employer contributions that they pay in respect of qualifying employees earning £43,927 or less.

How to apply

An application form is available on the HM Revenue and Customs' (HMRC) website (www.hmrc.gov.uk). The claim can be backdated if the business has already started to employ people.

How to operate the scheme

Employers operating the Regional Employer NICs Holiday scheme will need to withhold the employer NICs that they would normally pay to HMRC in respect of the first 10 qualifying employees. The holiday period for each employee runs from the date on which the employee was taken on (which must be within the first year of business) for 12 months or, if earlier, until the end of the scheme (6 September 2013). However, the holiday period will end before the 12 months is up if the £5,000 limit per employee is reached earlier. If the employer recruits more than 10 employees at the same time, the employer is free to choose which employees are qualifying employees under the scheme. The more the employee is paid, the higher the potential NIC savings for the employer.

If the employee is a member of a contracted–out pension scheme, the employer can withhold the amount of NIC payable at the relevant not contracted out rate.

At the end of each month or quarter, the amount that the employer pays over to HMRC is the amount calculated in accordance with the normal rules, less the amount of employer NICs benefiting from the holiday. HMRC provides a record keeping form at www.hmrc.gov.uk/forms/e89.pdf. These records can be inspected by HMRC.

Case Study

Start Up Ltd set up in business in Manchester on 1 October 2012. It hired five employees on 5 October 2012, a further three employees on 4 January 2013 and a further four employees on 10 November 2013.

The business is a new business and it is not in an excluded area. It applies to join the 2012 Regional Employer NICs Holiday scheme. The initial period runs from 1 October 2012 to 5 September 2013. As only eight employees were taken on in this period the holiday applies in respect of all eight. The employees who started on 10 November 2013 joined after the scheme ended and are therefore not within the scope of the scheme.

As regards to the employees who commenced work on 5 October 2012, the holiday period runs until 5 September 2013, unless the £5,000 employer NIC saving limit is reached before this date. Similarly, for the employees who joined on 4 January 2013, the holiday period runs until 5 September 2013, unless the £5,000 limit is reached before that date.

Further guidance on the scheme, including a postcode checker, can be found at www.hmrc.gov.uk/paye/intro/nics-holiday/index.htm.