National insurance payments for apprenticeships can be quite confusing, and there are some things that often need to be clarified to make them understandable. Hiring an apprentice is a great move for many companies, and they have many benefits.
However, not fully understanding the intricacies of NI can lead to issues and difficulties with salaries and payrolls. If left unresolved, they can even result in failures in HMRC compliance.
We will discuss when you should or shouldn’t pay NI for apprentices. We also discuss NI exemptions, different NI categories and how the Apprenticeship Levy can impact NI as well.
What is an Apprenticeship?
It helps to understand what an apprenticeship means and how it works in legal terms.
An apprentice is someone 16 years or older that is combining paid work with learning and development. Typically aimed at a specific job or role, they earn a wage while they are being taught the skills needed to thrive in this role.
Apprentices are classified as employees and enjoy many of the same rights as employees. As such, they will earn a wage and holiday pay. But there are separate rules in place for minimum wages for apprentices.
How does National Insurance work?
National Insurance contributions for apprentices are often a point of confusion for employers. We wanted to clarify the basics of National Insurance before addressing how they apply to apprentices.
First, National Insurance contributions are a tax on earnings that need to be paid by employees & employers alike, including the self-employed.
These contributions are typically paid in several ways. It is common for employees to have it deducted by their employer via Pay As You Earn (PAYE) schemes.
Employers also need to pay their own contribution on the earnings in addition to the shares of the employee.
National Insurance Classes
National Insurance is divided into different groups, or National Insurance classes. Each of them applies to different circumstances and are for different groups of people. The most relevant and common class is Class 1, with the subdivisions 1A and 1B too.
Class 1 is for both employees and employers to pay. They are paid on earnings above certain amounts. Employees are paying a percentage of their salary, and employers contribute as well.
Class 1A is for employers only. Class 1A contributions are paid on employee benefits, such as private health insurance and company cars.
Class 1B is paid by employers when they pay for minor benefits using a PAYE Settlement Agreement.
National Insurance Rates
National Insurance rates are the amount in percentages paid to fund state benefits. Depending on the overall earnings, the percentage paid changes.
National Insurance Category Letters
Besides Classes, there are also category letters that signify how much a NI a person should pay based on certain factors like age, employment status and more.
Most people will be category A, but there are different letters for different groups of people as well.
An example of some letters:
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Category A: Most employees who don't fit other categories.
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Category C: Employees over State Pension age.
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Category H: Apprentices under 25.
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Category M: Employees under 21.
Do employers pay NI for apprentices?
Now that we have discussed the different groups and categories of NI contributions, it will help us explain how paying NI contributions for apprentices works.
Generally, employers must pay NI for apprentices based on the apprentice’s wages.
However, there is an exemption where the employers do not have to pay National Insurance for apprentices, provided certain criteria are met:
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Apprentice is under 25 years old
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They are on a government approved apprenticeship scheme
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They earn less than £967 a week, or £50,270 a year
In order to apply for National Insurance relief, you need to provide certain bits of evidence.
The evidence can either be:
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Written agreement between employer, apprentice, and training provider, showing apprenticeship scheme, expected start and end dates, and a document confirming their approval of the training.
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Proof of government funding such as a declaration of apprenticeship incentive payment or employer payment schedule to the provider
If the apprentice does not meet the above criteria, the employer needs to pay contributions like they would for most of their other employees.
You need to use the correct apprentice NI codes to put on their payroll. These national insurance codes for apprentices indicate
The NI category for apprentices to use are:
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H for apprentice standard rate contributions, if your apprentice is under 25 and in an approved apprenticeship standard or framework
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G if your apprentice is a foreign-going mariner and is under 25
Apprentice Rates NI
For apprentices for whom the NI exemption does not apply, employers pay a rate of 15% Class 1 National Insurance contributions on earning above the secondary threshold, which is £5,000 per year.
Does the Apprenticeship Levy change anything for apprentice national insurance?
National Insurance rules and regulations are separate from the apprenticeship levy and whether you pay the levy, the NI calculations are the same and do not change.
You can still apply for NI relief if you are a levy or a non-levy employer.
The contribution rates and thresholds also apply across all employers equally, meaning that the levy does not impact this either.
Total People can help with apprenticeships
We know that apprenticeships can sometimes be confusing in the payroll and HMRC compliance departments. However, at Total People, we have a lot of experience in making sure that both employers and apprentices are getting the guidance and funding they are due.
If you are interested in working with apprentices or already working with them but need support with payroll or hiring new apprentices, we can assist.
Reach out to our experts and we can discuss how we help.
