A crucial National Insurance (NI) exemption, in place since April 2016, is delivering increasingly massive savings for businesses that employ apprentices under the age of 25. Following the most recent tax changes, the financial benefit of this relief has become more important than ever for a cost-effective workforce strategy.
The Exemption Explained
Under current government legislation, employers are not required to pay Class 1 Secondary (Employer) National Insurance Contributions on the earnings of an apprentice under 25.
This exemption applies to both new recruits and existing employees placed onto an approved apprenticeship standard or framework. In England, apprenticeship frameworks moved to apprenticeship standards in 2020. Existing apprentices on frameworks must have started on or before 31 July 2020. The only key condition (besides being on an approved scheme) is that the apprentice is under 25 years old and earning below the Upper Secondary Threshold (currently £50,270 per year).
Why the Savings Are Bigger Now
With the recent increase in the standard Employer Class 1 NI rate (rising to an estimated 15% for the 2025/2026 tax year for earnings above the Secondary Threshold), the value of this exemption has jumped significantly.
For businesses, this means that every pound paid to an eligible apprentice under 25 now results in a much larger avoidance of mandatory employer payroll costs. This is not just a small discount; it’s a complete zero-rating of the employer NI contribution on those wages, saving your business thousands of pounds per apprentice annually.
Action Point: Check the ‘H’ Tax Code
A common pitfall that causes businesses to miss out on these savings is an incorrect payroll setup.
For the exemption to be correctly applied in your payroll system, the eligible apprentice’s National Insurance Category Letter must be set to ‘H’ (Apprentice standard rate contributions, under 25). If they are currently listed under a standard category (like ‘A’ or ‘L’ based on the old guidance), your business is likely overpaying NI contributions to HMRC.
Immediate Payroll Review:
- Identify all current apprentices under 25.
- Verify their NI Category Letter is set to ‘H’.
- Adjust any incorrect category letters immediately to stop overpayments.
Don’t Forget: You May Be Able to Reclaim Overpayments
If your business has been incorrectly paying Employer NI for an eligible apprentice, you may be able to backdate claims to HMRC to recover the overpaid contributions for up to four tax years. A review of past payroll records against the apprentice’s start date and age is highly recommended.
Investing in apprenticeships is already a strategic way to build a skilled, loyal workforce. Ensuring you claim the full National Insurance relief makes it an even stronger financial decision.