You must not begin to take advantage of the Regional Employer National Insurance contributions (NICs) Holiday until HM Revenue & Customs (HMRC) confirms that you are entitled to do so.
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There are some key rules to follow when calculating the employer NICs you can withhold, such as the:
If you reach the NICs holiday limit of £5,000 per employee before the end of your employee’s individual holiday period, you must pay employer Class 1 NICs on any further earnings you pay to that employee from that date. You must then include those contributions in your monthly or quarterly payment to HMRC.
If you started your business during this period and are eligible for the holiday, you still have a one year period during which to recruit ten qualifying employees. This period starts from the date you commenced trading or hired your first employee - not from 6 September 2010. If you hired your first employee before 22 June 2010, your 12 month period begins on 22 June 2010.
Any employee taken on during this period counts towards the limit of ten employees, even if they left your employment before the scheme started on 6 September 2010. For those employees hired before the scheme started and still employed by your business, their individual 12 month holiday begins on 6 September 2010 - not the date they were hired.
If you qualify for the holiday, you are entitled to withhold the Class 1 employer NICs in relation to the first ten employees you employ during your first year in business.
For the purposes of the NICs holiday, your first year in business starts from the date you hired your first employee or the date you started trading - whichever is earlier. If you first hired an employee before 22 June 2010, your 12 month period begins on the 22 June 2010.
No matter how much you are paying an employee, they will still count towards the limit of ten employees. So even if you pay them at a level which means that no employer NICs are due, they will still count as one of your first ten employees.
Employees over pension age count towards the limit of ten employees.
Part-time employees count towards the limit of ten employees. So if,
for example, two part-time employees job share, they count as two employees,
not one.
Casual staff also count towards your limit of ten employees, no matter
how long they work for you.
If your employee has more than one job with your business, they count as only one employee from your limit of ten.
You are free to decide which employees count towards the first ten.
If your business employs members of your family, they count towards the limit of ten employees.
Owner-managers count towards the limit of ten employees. If they are voted amounts periodically, rather than receiving regular monthly pay, then those payments will qualify for the holiday, providing they are voted within the first year of employment.
The holiday period for each employee is the shorter of:
Where ten employees start work for you on ten separate dates, you will run ten separate holiday periods, running from different dates and - subject to the final cut off date (5 September 2013) - ending on different dates.
Only during this 12 month period can the earnings of each qualifying employee be considered eligible for the holiday.
You cannot have ‘stockpiled’ earnings until the holiday started on 6 September 2010 or bring forward earnings to a point before the holiday ends.
If you qualify for the holiday you will be entitled to withhold the Class 1 employer NICs due for qualifying employees, up to a limit of £5,000 for each employee.
It's important to note that you must still deduct and pay to HMRC all of your employees Class 1 NICs. You must also pay over any other classes of NICs (including Class 1A NICs due on benefits in kind) as they are unaffected by the NICs holiday and remain payable as normal.
This £5,000 limit applies to the whole of the holiday period for each qualifying employee. If the employer NICs due exceeds this limit at any stage during the holiday period, you must begin paying any Class 1 employer NICs due to HMRC with your next monthly or quarterly payment.
To calculate the amount of employer NICs you can withhold for each qualifying employee, you first need to calculate the amount of employer NICs that you would normally be due to pay to HMRC.
You should do this by whatever method you normally use when operating your payroll, for example a commercial payroll system, HMRC’s P11 calculator - which is available to download from the Business Link website or on a P11 Deductions Working Sheet or equivalent manual record.
If your employee is a member of your contracted-out occupational pension scheme, you can withhold the amount due at the relevant not-contracted out rate. To calculate this, use the table below to find the appropriate category letter then use HMRC's online NICs calculator or the manual NICs tables to work out the amount you can potentially withhold.
| Contracted-out NICs category | Equivalent not-contacted out NICs category |
|---|---|
| D or F | A |
| E or G | B |
| L or S | J |
Use HMRC's online NICs calculator
Download NICs tables to use for manual calculations
Bearing in mind the limits mentioned earlier in this guide, you may not be able to withhold all the Class 1 employer NICs due in any given pay period.
HMRC has produced an interactive form to help you to calculate and record the amount you can withhold. This form will help to make sure that you do not exceed the £5,000 limit for any employee.
To use this form, download it to your computer using the link below and enter the employee details. (Remember, if your employee pays NICs at a contracted-out rate, you should enter the equivalent not-contracted out figure).
Download HMRC's interactive NICs holiday recording form (PDF 578K)
Each tax month/quarter you must calculate all of the PAYE tax and both employer and employee NICs due for that tax period. To take advantage of the NICs holiday you simply deduct from that figure the amount of employer NICs you are entitled to withhold under the holiday scheme - as calculated at Step 2 above. You must then pay the balance to HMRC as normal, either monthly or quarterly.
You will need to keep a record of your monthly/quarterly payments to HMRC to enable you to complete your Employer Annual Return at the end of the tax year.
If you are entitled to make a recovery of any statutory payments you have paid to your employee, it is important that you use the correct gross NICs figure for your calculation.
The amount of any statutory payment recovery should be calculated by reference to the total gross NICs figure before you take off the amount of NICs holiday you are entitled to withhold.
Get help with statutory payments funding
You must keep a separate record for each qualifying employee that includes:
HMRC's interactive form will help you to record this information. If you use your own recording system it must record all of the information listed above.
Download HMRC's interactive NICs holiday recording form (PDF 578K)
You must retain the letter or email authorising you to operate the holiday. This tells you how much de minimis State Aid you have been granted.
HMRC may ask choose to inspect your records at any time, to ensure that the scheme is being operated correctly.
