NI break if you employ a veteran

September 10th 2021

The government has introduced an NI exemption to encourage employers to take on former military personnel. If this is something you’d like to support, what are the key considerations? Head of Payroll Joanne Gibson advises.

The government made a commitment at the last election to better support veterans in their transition to civilian employment. This has culminated in a new NI exemption for employers of veterans that came into effect on 6th April 2021. A zero rate of NI will apply from the secondary threshold for NI to the upper secondary threshold. That is the band of earnings that in 2021/22 runs from £170 per week/£737 per month to £967 per week/£4,189 per month. The exemption will apply for the first twelve months of the individual’s employment after leaving the regular Armed Forces (so it does not apply to reservists). If the individual began employment before 6th April 2021, the exemption expires on the twelve-month anniversary of their employment, meaning from the next pay period employers’ NI would be due as normal. The exemption is due to be in place until April 2024.

Who qualifies?
A person qualifies as a veteran if they have served at least one day in the regular Armed Forces. This includes anyone who has completed at least one day of basic training. The relief is available to all employers of veterans regardless of when the veteran left military service, providing they have not previously been employed in a civilian capacity. Veterans can take employment with organisations that have strong military links such as the Ministry of Defence or an Armed Forces charity and this will not preclude the exemption being available. An individual who sets up a limited company after leaving the Armed Forces would be able to take advantage of the exemption as a director of a limited company would be subject to Class 1 NI on any earnings.

Successive employments
Up to 5th April 2024, the exemption is available for the first twelve months of any civilian employment. So, if a veteran left the Armed Forces on 1st August 2020 and takes up a job for the first time on 30th August 2021, the employer is entitled to the exemption from 30th August 2021 to 29th August 2022. If the veteran leaves the first job and takes up a new employment on 30th November 2021, the new employer must establish with the former employer when the exemption is due to run out, so that from 30th August 2022 employers’ NI contributions commence.

Proving eligibility
To prove eligibility, you will need to have taken reasonable care to confirm the veteran’s eligibility and the start date of their first civilian employment. You can request any of the following documents during recruitment to confirm eligibility:

• The veteran’s ID card (which marks their time in the armed forces)
• A letter of employment or contract with HM Armed Forces
• The veteran’s P45 from leaving HM Armed Forces
• Discharge papers from HM Armed Forces
• The employment contract of an individual’s previous employment (in order to determine the start date).

For some reason, HMRC was unable to introduce a new NI table letter into payroll software to automate the exemption for the 2021/22 tax year. Because of this, during tax year 2021/22 employers’ NI should be calculated and paid over in respect of ex-veterans and then a recovery process will be in place after the end of the 2021/22 tax year and will be publicised to employers before 6th April 2022. From 6th April 2022 it is expected that a new table letter will be included in payroll software to automate the process for tax year 2022/23.

A zero rate of NI will apply from the secondary threshold for NI to the upper secondary threshold. A person qualifies as a veteran if they have served at least one day in the regular Armed Forces. The exemption will be handled as a manual recovery after the 2021/22 tax year.