HMRC is to spend £2m on systems to implement the abolition of employers’ National Insurance contributions (NICs) for under-21s which was announced in the Autumn Statement, while employers will face one-off costs totalling an estimated £7.5m according to Harris & Co accountants Northampton who provide payroll services to many small and medium sized businesses.
From 6 April 2015 every employer with employees under the age of 21 will no longer be required to pay Class 1 secondary NICs on earnings up to the upper earning limit (UEL), for those employees, as part of government bid to boost youth employment prospects.
HMRC says as result the Exchequer will lose out on £465m of tax in the first year of the new rules, rising to £530m by 2018-19. It puts the costs of implementing the change to be around £2m, made up of £1.7m of IT costs and £300,000 of staff costs for delivery.
The measure is expected to directly affect around 340,000 employers, and HMRC says most of them will be able to implement the exemption automatically via updates to their payroll software so the correct NIC letter is applied to employees who are under 21. It puts the ongoing administration cost for employers who may need to update their systems manually at just under £5 per eligible employee, totalling £700,000 across affected businesses.
In total, HMRC anticipates one-off costs across employers of around £7.5m related to training and familiarisation, based on around 30 minutes of preparation per employer already employing under 21 year olds and a smaller time period for all other employers