New government proposals target the promoters of national insurance contribution (NIC) avoidance schemes, while plans are in place to introduce a zero rate of employer contributions in Freeports. Both measures are included in the National Insurance Contributions Bill 2021.
Crackdown on avoidance
NIC avoidance is already within the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime, but these measures will strengthen HMRC’s ability to clamp down on the market for NIC avoidance. HMRC will be able to act quickly and decisively where promoters fail to provide information on their NIC avoidance schemes.
One area which has received considerable publicity is the use of mini-umbrella companies, where a temporary workforce is split into hundreds of small, limited companies. Each company benefits from the £4,000 employment allowance, avoiding the annual employer NICs on this amount.
HMRC is on the lookout for particular actions. The new measures target promoters that:
• Respond by restructuring their business when challenged by HMRC;
• Engage in protracted circular correspondence; or
• Simply deny they are a promoter even with clear evidence.
From 6 April 2022, employers with business premises in a Freeport tax site will be able to benefit from a zero rate of employer NICs (visit www.britishports.org.uk/Freeports to find out more about Freeports). Eligible employees will be those who spend at least 60% of their working time at the site. However, only new hires will qualify, and then only on annual earnings up to £25,000. Relief will apply for 36 months per employee. At current rates, a Freeport employer will save a potential £6,690 in NICs per employee over 36 months.
Relief is available until at least 5 April 2026, although it might run for a further five years. Regardless of whether relief is extended, new hires employed by 5 April 2026 will qualify for 36 months of relief.
The government is pursuing two divergent NIC strategies. Umbrella companies should make sure they are not avoiding NICs, while businesses in Freeports benefit from an employer NIC-free zone. #taxavoidance#HMRC #NICs #Freeports