Who is likely to be affected

Employers operating in a designated special tax site in a Freeport or Investment Zone who are claiming the secondary Class 1 National Insurance contributions relief for eligible employees.

General description of the measure

This measure makes provision to require employers operating in a designated special tax site in a Freeport or Investment Zone to provide their employee’s workplace postcode to HMRC if they are claiming the secondary Class 1 National Insurance contributions relief through their payroll.

Policy objective

The secondary Class 1 National Insurance contributions relief for eligible employees in designated special tax sites is conditional on 60% or more of the employee’s working time being in the special tax site (unless the employee meets an exemption due to protected characteristics such as employees with disabilities, who are pregnant or who given birth within the previous 52 weeks). The collection of this data, which employers should readily hold, will help reduce employer error. The location information will also support HMRC in assuring validity of claims without generally having to contact the employer, enabling data driven compliance activity.

Background to the measure

Since 6 April 2022, employers operating in a designated special tax site in a Freeport can claim a zero-rate of secondary Class 1 National Insurance contributions on earnings of eligible employees between the secondary threshold (to be set at £5,000 from April 2025) and £25,000 per annum, for up to 36 months. From 8 April 2024, this relief also applies to employers operating in a designated special tax site in an Investment Zone.

This measure makes provision to mandate employers who claim the secondary Class 1 National Insurance contributions relief, to also provide their employee’s workplace postcode to HMRC through their payroll. This is information the employer would normally hold as it underpins eligibility to the relief and therefore employers should be able to provide this information at the point of claiming the relief.

This measure was announced at Tax Administration and Maintenance Day on 18 April 2024. A technical consultation on the draft regulations was published on 18 April 2024 and closed on 15 May 2024. None of the responses identified any issues with the draft regulations, with feedback suggesting the draft regulations met the intended policy aims set out in the consultation. The potential impacts raised by respondents through the consultation have been covered within the business impacts section below.

Detailed proposal

Operative date

This measure will take effect from 6 April 2025.

Current law

The law providing for special tax site secondary Class 1 National Insurance contributions relief can be found in sections 1 to 5 and 8 of the National Insurance Contributions Act 2022.

The information an employer must provide to HMRC in their Real Time Information (RTI) returns is included in Schedule 4A to the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004).

Proposed revisions

The Social Security (Contributions) (Amendment) Regulations 2025 amends schedule 4A to the Social Security (Contributions) Regulations 2001 and provides for a new reporting requirement for employers who claim the secondary Class 1 National Insurance contributions relief available to eligible employers in designated special tax sites in Freeports and Investment Zones.

From 6 April 2025, employers claiming this relief must include a workplace postcode in their payroll information to HMRC, in respect of an employee they are claiming the relief for.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
—	nil	nil	nil	nil	nil

This measure is not expected to have an exchequer impact.

This measure will help ensure that only eligible employments are being claimed for, meaning any savings will be a protection of revenue.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is not expected to directly impact individuals as it primarily affects employers who are operating in designated special tax sites in Freeport and Investment Zone and claiming the secondary Class 1 National Insurance contributions relief.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics. Where an employee has an adjustment for the protected characteristics of disability, pregnancy and maternity and does not need to meet the 60% working time requirement to be eligible for the reliefs, the employer will provide the postcode for the special tax site at which the employee works or would work except for the adjustment made to accommodate the protected characteristic.

Impact on business including civil society organisations

This measure will have a negligible impact on employers operating in a special tax site by mandating employers to provide their employees’ workplace postcode in their payroll information submission to HMRC.

In limited circumstances an employee’s workplace may not have an assigned postcode from the Royal Mail, for example, where an area of land inside the designated special tax site is undeveloped with no previous infrastructure and the employee is preparing the land for construction. In this scenario, the employer should contact HMRC. An officer of HMRC will provide a code to the employer which must be provided in their payroll information. We expect the number of employers to be affected by the scenario to be low, fewer than 10% of total claims (less than 200 employers per annum).

In tax year 2022 to 2023, 1,200 designated special tax site Freeport employers benefitted from the secondary Class 1 National Insurance contributions relief. The first special tax sites in Investment Zones were designated on 8 April 2024 and we expect similar numbers of designated special tax site Investment Zone employers will also claim the National Insurance contributions relief.

One-off costs could include familiarisation, and submitting employee’s workplace postcodes for existing claims. Continuing costs could include submitting employee’s workplace postcodes for new claims.

Customer experience is expected to remain broadly the same as this measure will not affect how most businesses interact with HMRC. Although there may be some one-off and continuing costs involved, it is anticipated the requirement for employers to provide this additional information to HMRC should help reduce employer error from the outset when claiming the National Insurance contributions relief, and will also support HMRC in assuring validity of claims without generally having to contact the employer.

This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

HMRC will need to make IT changes to support implementation of this measure. These changes are expected to cost in the region of £700,000.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through compliance reviews of the payroll information captured through employer RTI returns, and through engagement activity with stakeholders.

Further advice

If you have any questions about this change, please contact HMRC at nics.policy@hmrc.gov.uk.

Declaration

James Murray MP, Exchequer Secretary to HM Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.