Freeport National Insurance Contribution Relief Explained

Keturah Adam, Trainee Solicitor at Wright, Johnston & Mackenzie LLP, explains how businesses can take advantage of NIC relief.

October’s 2024 Budget brought an increase in employers’ National Insurance contributions, which came into effect in April.

However, there is good news for businesses located within a Freeport tax zone as they can benefit from significant savings in this area.

As of April 2025, businesses are required to pay secondary class 1 National Insurance contributions (NIC), at a rate of 15%, up from 13.8%, on all employee salaries above £5,000 per year. On top of this, the threshold at which employers start to pay NIC decreased from £9,100 to £5,000, which has put an immediate strain on the finances of some businesses.

However, businesses located within a Green Freeport Tax Zone can take advantage of a tax benefit which grants them a Zero Rate NIC for the first 36 months of each new employee’s tenure.

This reduction in employment costs naturally encourages the creation of new employment opportunities.

Currently, an employee who is on a salary of £25,000 typically incurs an employer NIC of £3,750 per year.

Therefore, removing the 15% employer NIC over the 3-year period saves a business £11,250 in NIC per employee.

Eligibility

It is important to note that for businesses to be able to claim this relief, certain conditions must be met. For example, employees would need to: spend at least 60% of their working time within the Freeport have started their employment between April 6th 2022 and September 30th 2034, and be within their first three years of employment.

There are exceptions, such as employees who require reasonable adjustments due to a protected characteristic of disability, pregnancy or maternity. The 60% working time is treated as being met if they would normally spend that time working within the Freeport tax zone. Therefore, these employees will still be eligible for this relief. An employee also does not need to be working full-time hours to be eligible.

Restrictions and pitfalls

Be aware that this tax benefit can only be claimed up to the Upper Secondary Threshold of £25,000 per year per employee, so employers will still pay NIC on the amount above this limit.

There is also an opportunity for employers to claim NIC relief on employees moving into the freeport zone – provided they are within the first three years of their employment. For example, if an employee starts working in the tax zone 20 months into their employment, NIC relief can be claimed for the next 16 months.

The devil is in the detail. No such apportionment is available for employees who spend less than 60% of their time working within the tax site. Also, employers expanding into Green Freeport Zones should be aware that any new employees must not have been employed by the employers, or a connected employer, within the 24 months prior to starting their employment.

Best practice

This tax benefit comes with important reassessing and reporting requirements. Should an employee be reasonably expected to drop below the 60% working time requirements, there is an obligation on the employer to stop claiming. A National Insurance Contributions category letter and the relevant employees’ workplace postcode must be provided to HMRC.

This tax relief is obviously attractive to employers looking to expand into, and diversify into, Green Freeport Zones, presenting a great opportunity for businesses to expand their workforce for long-term growth. However, to get the maximum benefit available to a business, proactive planning alongside coordination with legal and tax experts is key.

At WJM, our team is prepared for all legal possibilities regarding freeports and is ready to help businesses fully capitalise on this once-in-a-generation incentive. If you need guidance around unlocking all they have to offer, contact us on 01463 234445 or email corporate@wjm.co.uk.

This article first appeared in Executive magazine