Updated CWG2 'Further Guide'

On 09 February 2022, HMRC updated their ‘Further Guide to PAYE and NICs’ guidance CWG2 .? The 2022/23 version was originally published on 01 February 2022 but omitted reference to important things such as the increase in National Insurance percentages and the Veterans and Freeports Upper Secondary Thresholds (VUST and FUST).

However, whilst these are now included, the amendments to sections 3.9.6 to 3.9.8 highlight a change to the National Insurance Contributions (NICs) calculations, something that is in the public domain but has not been highlighted. ?

I am particularly going to focus on the example at 3.9.7 which is to do with the zero rate of secondary (employer) contributions for employees working in a Freeport tax site where the employee is earning ￡5,000 per month.? To use this zero rate from 06 April 2022, an employer must employ a NEW employee on or after 06 April 2022 up to and including 05 April 2026 where:

• The employer has a business premises in that Freeport tax site, and
• The employee spends 60% of that employment in a single Freeport tax site

As I will be looking at these changes, in the first instance, it is worthwhile noting the NICs monthly thresholds and percentages for next tax year compared to 2021/22:

The example quoted indicates an employee earning ￡5,000 per month.??

In the first instance, there is no change to the calculation or reporting of the thresholds on the Full Payment Submission.? For ￡5,000 per month, this will be:

The HMRC calculation is explained as follows:

Already we can see that there is a need to consider rounding as per The Social Security (Contributions) Regulations 2001 which requires the calculation to be rounded up or down according to the value of the third decimal point:

• If there is no third decimal point, do not round and use the value calculated
• If the third decimal point is 5 or less, round down
• If the third decimal point is 6 or more round up

Plus, we can see that the introduction of the FUST has changed the calculation for the employer in that we have to regard earnings above the UEL as a separate calculation.? A separate calculation is something that we always had to do with the employee calculation.

On 17 January 2022, National Insurance payroll technical specifications were placed on Gov.UK.? These are for software developers and indicate how their products should perform the NICs calculation.? These are much more complicated for employers to follow.? Yet, if we are doing manual calculations at any time, it is necessary to understand them.? In the past, we have always replicated them as well.

The biggest change is that the FUST is included in every NICs calculation, regardless of whether or not the employee is working for an employer based in a Freeport tax site.? So, the revised calculation method that includes the FUST will apply to everyone (NI letters A, B, C etc, not just the Freeport NI letters F, I, S and L).

Here is how software will be calculating NICs from 2022/23, based on ￡5,000 and table letter F:

This is exhausting and confusing to explain, let alone teach to someone who has to perform manual calculations.? Yet, if we are trying to mirror the calculations in software (which is the whole point of manual calculations), there are some things to point out:

• The FUST is a consideration for all NI letters
• For the employee, it is very important to perform the rounding of NICs at the correct stages – once on the two values up to and including the value of the UEL and once on earnings above the UEL. ?If the rounding is performed at the wrong stages, this may affect the end result
• For the employer, there is a new threshold to take into consideration, that being the value of NI’able pay between the Secondary and Primary Thresholds.? This is 0% at the moment
• For the employer, it is similarly important to perform the rounding at the correct stages.? In manual calculation examples that I have done, rounding at the incorrect stages leads to 1p differences.? A 1p in a manual calculation is the difference between right and wrong

It is beyond comprehension that the FUST is considered when calculating NICs for the employee and employer when there is no Freeport tax site consideration.? In fact, I would question whether HMRC’s non-statutory guidance to software developers is correct:

• Budget 2021 (point 2.115) said ‘the government also intends to make an employer National Insurance contributions relief available for eligible employees in all Freeport tax sites from April 2022’.? Someone on a NI letter other than F, I, S or L is not an eligible employee in a Freeport tax site
• HMRC’s Policy Paper published 12 May 2021 says that legislation ‘will introduce a secondary Class 1 National Insurance contributions relief for eligible employers on the earnings of eligible employees working in a Freeport tax site’.? Someone on NI letter A, for example, is not an eligible employee working for an eligible employer, therefore, why is FUST a consideration?
• The guidance from the Department for Levelling Up, Housing and Communities published 27 October 2021 says ‘Eligible businesses in Freeports will enjoy a range of tax incentives, such as enhanced capital allowances, relief from stamp duty and employer national insurance contributions’.? Therefore, if the threshold that gives this relief (the FUST) is not available for non-eligible businesses, why is it a consideration?
• The CWG2 itself says (at point 3.9.7) ‘A 0% rate of secondary National Insurance contributions was introduced from April 2022 for employers of employees working in a freeport tax site up to the Freeport Upper Secondary Threshold (FUST). The FUST is set at ￡25,000. There’s no reduction in the rate of secondary Class 1 NICs above the FUST’.? An employee working for an employee not in a Freeport tax site, therefore, does not have to consider the FUST
• Most importantly, the legislation (the National Insurance Contributions Bill 2021-2022) says that zero-rate NI Contributions will apply for employees of employers based in Freeport tax sites where the employment is new and starts between 06 April 2022 and 05 April 2026.? If a zero-rate threshold (the FUST) does not apply to any other employees or any other employer, why is it a consideration in the calculation of NICs?

For employees that are not assigned a Freeport tax site NI letter (F, I, S and L), I can fully understand the developers who have stated that they will not make changes to the way that NICs are calculated.?

The FUST is only a consideration where there are new employees and the employer is an eligible one operating in a Freeport tax site.? Why should the entire NICs calculation change for non-eligible employees starting work with non-eligible employers?

However, we are where we are and have to face the fact that some providers will do it and some will not.? If it’s not in legislation (statutory) but is in non-statutory guidance, this is a difficult one and I would advise employers to query with their provider.

When the 2022/23 versions of these are released, it will be interesting to see whether they are all consistent with the revised way of calculating NICs.?

This is a very long article when I am looking to convey, simply, that:

• There is no change to the calculation of the thresholds that have to be reported on the FPS, however,
• HMRC’s non-statutory guidance indicates that there is a change in the calculation of the Contributions themselves