Freeports: Tax incentives and reliefs for employers

Freeports: Tax incentives and reliefs for employers

In an effort to stimulate growth in Freeport sites, the Government has introduced an incentive for employers to engage new employees. The headline is that this could result in employment cost savings of up to £16,850 per employee during the proposed 4-year life of the incentive – which may be extended to 9 years’ subject to a review.

The savings will be achieved by the implementation of 0% rate of Employers NICs, normally 13.8%, from 6 April 2022 up to an individual salary cap of £50,270 per employee. The legislation includes a provision for this cap to be set at a lower level, but at the time of writing it appears that the Government has decided not to utilise it. If it does, indications are that the savings would reduce to circa £6,400 per employee. 

The key requirements for Employers NICs relief

There are three key requirements to be aware of before the incentive can be claimed:

  • the employer must have a physical premises within the Freeport site
  • the employee must be a “new” hire employed between 6 April 2022 and 5th April 2026
  • the employee must be expected to spend 60% of their working time within the Freeport site

Let’s look at the key requirements in a little more depth:

The boundary of the Freeport site will be clearly set and within that boundary the employer has to have “premises”. This term is not further defined but the usual legal definition relates to land or buildings from which a company, partnership or sole trader conducts its business. As yet there is no commentary as to whether the employee has to work on the specific land or in the building(s) designated as premises, as long as they work within the Freeport site. Nor would it appear to be a requirement for the NIC incentive for the business to own the premises.

The term “new” means, as it suggests, individuals who are being employed for the first time by a business that wishes to claim the NIC exemption. So if the individual has had an employment with the business at any point in the two years prior to being employed again they are not considered “new”. Sadly, this would seem to mean that any staff laid off because of the Covid-19 pandemic and being re-engaged from 5 April 2022 will also not qualify. It is also important to note this includes employment with any other person or entity that is connected, for tax purposes, to the new employer.

While the first two requirements are quite clear, the third may give rise to some complications regarding interpretation. The underlying legislation refers to establishing a “reasonable expectation” when the individual is either first employed, or when there is a substantial change in the individual’s working arrangements, that they will be spending 60% or more of their working time in a single Freeport site in which the employer has premises. 

So what this may rule out, for example, are HGV drivers who will spend significant time outside the Freeport site and also maintenance workers who routinely travel between various dock sites. It does, however, cater for the scenario when an individual is newly employed after 6th April 2022 by an employer with premises at a Freeport site does not initially spend 60% of their working time at that site but then starts to do so. While for some roles it will be clear whether they meet the 60% threshold or not, inevitably some will be in the balance and how HMRC choose to interpret what is a “reasonable expectation” remains to be seen. 

What the employers NICs incentive doesn’t do?

This incentive is focused on encouraging employers to engage new employees. It has been drafted to minimise exploitation as far as possible. As such, if whoever “employs” the individual is different to the organisation responsible for Employers NICs they will be treated as one, and it does not matter whether one or more employment contract is in place. These measures have been introduced to combat the use of structures, such as intermediaries, to maximise the use of the incentive. This may be as a result of the use of “mini-umbrella” companies to maximise exploitation of the Employment Allowance for small employers.

This is an employer only incentive and does not convey a similar reduction for Employees NICs which remain payable in the normal way. It also does not impact the requirement to consider Class 1A NIC liabilities for any non-cash benefits in kind an employee may receive. Further, while the NIC rate is 0% on qualifying earnings, they remain classed as earnings for NIC purposes so the full salary would remain liable to the Apprenticeship Levy if it is applicable. 

How we can help

There is some time before the legislation is effective and we suggest it should be used wisely to consider whether your organisation can benefit from the incentive. If the premises requirement can be met, then considering when to engage new staff with the incentive in mind is worthwhile. You might also examine how roles can be structured to maximise uptake of the incentive.

Visit our Freeports hub for more information