CWG2 (Further Guide) Changes 07 June 2022

The CWG2 has been updated with the following message:

What this means is changes to:

This is about an employer that has more than one PAYE reference for separate groups of employees.

The change is to say that employers can no longer make the application in writing but must use the online form P350 and either:

• Use the online service, or
• Complete the form on-screen, print it and post to HMRC

This is the section that talks about the zero rate of secondary contributions for employers of HM Armed Forces veterans entering civilian employment for the first time.

I cannot see that there are any fundamental changes to what we know already and only subtle grammar changes have been made.?

I was hoping that there would have been a change to mention of the 0% rate applying to Upper Secondary Threshold (UST) when it is actually the Veterans Upper Secondary Threshold (VUST) – maybe in the next update!

This is the section that talks about the zero rate of secondary contributions for employers of employees working in a Freeport tax site.

As far as I can see:

• There has been a cosmetic change in the guidance (‘freeport’ changed to ‘Freeport’)
• A duplicated section has been removed (that talked about the different Freeport NI letters)

It is a shame that the following wording remains:

The ‘Freeport rate’ and the Freeport Upper Secondary Threshold (FUST) is only applicable when the employee is allocated a letter F, I, S or L.? Yet, HMRC’s own guidance to software developers (the EB5) says that payroll software must perform calculations using the FUST for all employees, i.e. regardless of category letter.

The introduction of the FUST means that payroll software must look at NI’able earnings and perform a number of steps to calculate Contributions:

1. Earnings up to and including the Lower Earnings Limit (LEL)
2. Earnings above LEL up to and including the Secondary Threshold (ST)
3. Earnings above ST up to and including Primary Threshold (PT)
4. Earnings above PT up to and including FUST
5. Earnings above FUST up to and including Upper Earnings Limit (UEL)
6. Earnings above the UEL

Steps 7 and 8 are then to do with the calculation of Contributions for the employee and employer.? For example, employer Contributions require:

• The addition of Steps 3 and 4, multiplied by the relevant percentage and unrounded, PLUS
• Step 5, multiplied by the relevant percentage and unrounded, THEN
• The addition of the two unrounded values and the National Insurance rounding rule applied at this stage, PLUS
• Step 6, multiplied by the relevant percentage and rounded

This is not simple when teaching the manual calculation of National Insurance.? Yet, if we are to get to the same value that payroll software has calculated, we have to follow this method.? Failure to do this may result in 1p differences as a result of the application of the rounding rule.

This could have all been avoided if HMRC had applied the legislation and its own guidance which says that the FUST only applies to employers with employees working in Freeport tax sites!

Three conclusions about the update:

1. There is another push towards using online functionality rather than accepting written instructions
2. For employers that apply letter V for veterans in civilian employment, note it is the VUST that is relevant, not the UST – even though the two values are aligned at the moment
3. FUST has altered the way in which National Insurance is calculated manually, even though the CWG2 says it has not