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Upcoming employment tax changes: check your compliance

Navin Sharma, Assistant Manager, Employers Advisory Group
05/02/2021
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There will be a number of employment taxes changes in the near future, with most coming into effect in April 2021. We have outlined in further detail the changes to the following:

  • Armed forces taxes
  • Apprenticeships taxes
  • National Living Wage (NLW)
  • National Minimum Wage (NMW)
  • Coronavirus Job Retentions Scheme (CRJS).

Armed forces

A reduction in Employer National Insurance Contributions (NIC) for ex armed forces has been recently announced.

Draft legislation has been published, confirming that Employer NIC (currently 13.8%) will be reduced to 0% for one year (starting 6 April 2021) for every new employee taken on that has previously been in the military.

These new changes will enable employers to apply a zero-rate of Class 1 Employer NIC on the earnings of veterans during the first year of their civilian employment. It is intended this will provide employers with a relief worth up to £5,000 for each qualifying veteran they hire.

A veteran will qualify if they have completed at least one day of basic training in Her Majesty’s regular armed forces. Employers will be able to claim this relief for the 12-month period starting on the first day of the veteran’s first civilian employment since leaving the regular armed forces.

Apprenticeships

The Government have announced a new £1,000 cash support incentive for every trainee a business takes on, to help with the cost of providing an apprenticeship.

The Government will offer employers a new £1,000 bonus for every trainee they take on with up to a maximum of 10 trainees.

The cash boost, which is available until 31 July 2021, will help businesses with the cost of providing a high-quality work placement for a trainee.

Employers can claim the cash incentive for all work placements that have been completed since 1 September 2020.

This new cash boost is in addition to the apprentice scheme announced last year, which offers employers £2,000 for each new apprentice they hire aged under 25, and £1,500 for apprentices aged 25 and over.

NMW rises

Currently, the National Living Wage must be paid to employees who are 25 or over. From April 2021, the NLW will also include employees who are 23 and 24 years old.

The NLW rises by 2.2% from £8.72 in April 2020 to £8.91. From April 2021, there will also be increases in the NMW for apprentices and those 22 and under.

The increases in the minimum wage rates that will apply from April 2021 are:

    April 2020  April 2021   
  National Living Wage  £8.72 £8.91   
  23-24 year old rate  £8.20 Abolished - entitled to NLW  
  21-22 year old rate £8.20  £8.36  
  18-20 year old rate £6.45  £6.56   
  16-17 year old rate £4.55  £4.62   
  Apprentice rate  £4.15  £4.30   
  Accommodation offset  £8.20  £8.36   

NMW Interaction with CJRS

National Minimum Wage (NMW) rates must be paid for all hours worked. However, furloughed workers can be paid the lower of 80% of their wages (subject to the £2,500 cap) for furloughed hours even if, based on their usual working hours, this would be below their appropriate NMW rate.

Businesses will need to be careful where furloughed staff carry out work-related training, which is not classed as 'work' for CJRS purposes, but is classed as 'work' for NMW purposes, and so will still need to be pay for at or above NMW/NLW rates. HMRC state that employers will need to ensure that the wages and furlough payment provide sufficient monies to cover all working time including these training hours.

Where an employee receives pay which is less than the appropriate minimum wage entitlement, the employer will need to pay additional amounts to ensure at least the appropriate minimum wage is paid for both working time and 100% of the training time while furloughed.

CJRS changes for variable paid workers

The government has adjusted the reference salary rules for variable paid workers to account for the fact that, by the scheme end date of 30 April, CJRS will have run for more than a year. The March and/or April 2021 calculations for employees with variable pay who were eligible for the original version of the furlough scheme is based on the higher of:

  1. the employee's average income in the 2019-20 tax year
  2. what they earned in the corresponding pay period of the previous year.

Additionally, ‘usual hours’ for employees affected above will be the higher of average hours worked in 2019-20, or actual hours in the equivalent month of the 2019 calendar year.

The government seeks to ensure that employees don’t receive less income this year when they already received less pay last year, due to being furloughed. The change solves this issue by requiring employers to use the March and April 2019 figures to provide a more appropriate comparison.

Next steps

If you have any questions relating to the upcoming changes, please contact Caroline Harwood or your usual Crowe contact.

Contact us

Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax
London