From 6 April 2015 employers with employees under 21 will no longer have to pay Employer NICs on earnings up to the upper earnings limit (2015/16 £42,385).

The zero rate won’t apply to Class 1A or Class 1B NIC’s – e.g. where employee has a chargeable benefit in kind for NIC purposes from employment.

This measure will not affect the individual’s state pension entitlement.

Employers need to be aware that this change has resulted in new NIC category letters and if employing someone aged over 16 but under 21 then a new NIC category letter will need to be selected. It is the employer’s responsibility to ensure the correct letter is selected.

The 7 categories are:

1. M - not contracted-out standard rate contributions
2. Z - not contracted-out deferred rate contributions
3. Y - mariners not contracted-out standard rate contributions
4. P - mariners not contracted-out deferred rate contributions
5. V - mariners contracted-out salary related contributions
6. I - contracted-out salary related standard rate contributions
7. 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.

For full details please refer to HMRC - Abolition of Employers NICs for under 21s

Please contact us  for further advice on operating payroll etc.