National Insurance: £2,000 Employment Allowance

posted on April 23, 2014in the Blog Category

National Insurance: £2,000 Employment Allowance

The Government has announced that from 6 April 2014 a new “Employment Allowance” of £2,000 per year is available to many UK businesses to reduce their liability for Class 1 secondary NICs. An employer can claim the employment allowance if it is a business or charity (or community amateur sports club) that pays employer Class 1 NICs on employees’ or directors’ earnings. If the company belongs to a group of companies or the charity is part of a charities structure, only one company or charity can claim the allowance; it is up to the group to decide which company or charity will do so.  Similarly, if your company runs more than one PAYE scheme, you can only claim the Employment Allowance against one scheme. The allowance is not available to all businesses, for example:

  • Domestic employers such as anyone employing a nanny, au pair, care worker, chauffeur, gardener etc.
  • Employers who carry out functions either wholly or mainly of a public nature, such as NHS services or General Practitioner services.
  • Personal service companies will not be able to set the allowance against any additional NIC payable resulting from a deemed salary calculation.
The allowance will not be given automatically so the employer will need to claim it.  Once made, HMRC will automatically carry the claim forward each tax year. The allowance can be claimed using payroll software or HMRC’s Basic PAYE Tools.  The employer will then offset the allowance against each monthly Class 1 secondary NIC payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends. It should also be noted that from 6 April 2014, employers are no longer able to claim the Percentage Threshold Scheme (PTS) reimbursement for Statutory Sick Pay (SSP). If we complete your payroll, we will make the claim for the Employment Allowance on your behalf. If you complete your own payroll please ensure you make the claim through your payroll software or HMRC’s Tools. Increase in Personal Allowance to £10,000 As you will no doubt be aware, from 6 April 2014 the standard personal allowance has increased to £10,000. For directors who currently take a small salary from the company and do not have other ‘earned’ income or benefits in kind, there is now an argument to increase that salary to £10,000, even though the NIC threshold will only be £7,956 and therefore some NICs will be payable. If the Employment Allowance will not be utilised by other staff members’ salaries, the employer’s NIC would be covered by it, leaving only the employee’s NIC payable. The company would also obtain a deduction for corporation tax purposes for the additional pay. So, the extra £2,044 salary will save £409 in corporation tax (at 20%) whereas the additional employee’s NIC would be just £245. If you would like to discuss this in more detail please let us know we will be happy to help. Stella Corbett, Payroll Manager

Written By: MBL

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