National Insurance Contributions Bill 2021-22

The National Insurance Contributions Bill 2021-22 was introduced on 12 May 2021. The Bill, with its explanatory notes, is published on the Bill’s page on Parliament.uk, which also provides details of its parliamentary progress to date. Further information on the Bill is collated on Gov.uk.

The Bill received a second reading on 14 June. It was considered in Committee in a single session on 22 June, when it was agreed, unamended. The Bill completed its remaining stages in the Commons on 6 September, when the House agreed a Government amendment to correct a small drafting error. The Bill received its second reading in the House of Lords on 1 December, and completed its scrutiny on 22 February 2022. A series of amendments were agreed at the Bill’s Report stage on 7 February. These were approved by the Commons on 1 March, with the exception of two amendments that had been tabled by the Opposition and agreed on division. In turn this legislation received Royal Assent on 15 March 2022.

This briefing provides a short overview of the National Insurance system, before discussing the content of the Bill.

The Bill

The Bill would introduce four measures:

• a new zero-rate of secondary Class 1 National Insurance contributions (NICs) for employers taking on employees in a freeport. Employers would be able to claim relief on the earnings of eligible employees up to £25,000 per year, for three years. The zero rate would apply from April 2022.

• a new zero-rate of secondary Class 1 NICs for employers who hire an armed forces veteran during their first year of civilian employment after leaving the armed forces. Employers would be able to claim relief on the earnings of an eligible employee up to the NICs Upper Secondary Threshold. Employers would be able to claim the relief from April 2022 and transitional arrangements will allow retrospective claims for the 2021/22 tax year.

• an exemption for Covid-19 Test and Trace Support Payments for Class 4 and Class 2 NICs, which are paid by the self-employed. An exemption already applies for Class 1 and Class 1A NICs – paid by employees and employers – and this measure would be formally retrospective for the 2020/21 tax year.

• a provision to allow changes to the Disclosure of Tax Avoidance Schemes (DOTAS) regime as it applies to NICs avoidance schemes. These changes would mirror amendments to the DOTAS regime as it applies to other tax avoidance schemes, made by provisions included in the Finance Bill 2021.

These measures would extend and apply to the whole of the UK.

Clauses 1 to 11 of the Bill cover these four measures. The remaining clauses (12-14) set out how regulations under this legislation are to be introduced, the definition of various terms used, and the title of this legislation.

Statutory provisions regarding NICs are not included in the annual Finance Bill. Over the last few years changes to NICs have been made by the introduction of relatively short bills similar to this one (for example, the National Insurance Contributions Act 2014, and the National Insurance Contributions Act 2015

The cost of the NICs measures in the Bill

The new NICs relief for employers engaging employees in Freeports is anticipated to decrease NICs receipts but to date the Government has not published a detailed estimate of the impact it will have on tax revenues – its ‘Exchequer impact’. The new NICs relief for armed forces veterans is estimated to cost £15m in 2021/22, rising to £20m in 2022/23.  The two other measures in the Bill – relating to Test and Trace Support Payments and the DOTAS regime – are not expected to have an Exchequer impact.

Further reading

Several other Library briefings are relevant to the four measures in the Bill:

• UK Government policy on freeports, Commons Briefing paper CBP8823, 14 February 2022
• Support for UK Veterans, Commons Briefing paper CBP7693, 9 November 2021.
• Coronavirus: Test and Trace Support Payments, Commons Briefing paper CBP9015, 19 January 2022
• Tax avoidance: a General Anti-Avoidance Rule – background history (1990-2010), Commons Briefing paper CBP2956, 16 January 2020 (section 2.1 discusses the introduction of the DOTAS regime).
• Tax avoidance and tax evasion, Commons Briefing paper CBP7948, 24 November 2021 (sections 5.6-5.7 cover the development of the Government’s strategy to address tax avoidance scheme promoters, and the provisions in Finance Bill 2021 to amend the DOTAS regime).