Can you afford to ignore the new Employment Allowance?

From 6 April 2014 employers can claim to reduce their employer Class 1 National Insurance contributions (NICs) by up to £2,000 under a scheme called the ‘Employment Allowance’.

You can claim the Employment Allowance if you are a business or charity (including CASC’s) that pays employer Class 1 NICs on your employees’ or directors’ earnings. You can only claim the £2,000 Employment Allowance against one PAYE scheme where multiple schemes are in operation for a business.

Some businesses are excluded from this allowance including those who;

• employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
• already claim the allowance through a connected company or charity
• are a public authority, this includes; local, district, town and parish councils
• carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
  • NHS services
  • General Practitioner services
  • the managing of housing stock owned by or for a local council
  • providing a meals on wheels service for a local council
  • refuse collection for a local council
  • prison services
  • collecting debt for a government department
• providing security and cleaning services for a public building, such as government or local council offices
• supplying IT services for a government department or local council
• personal service companies will also need additional consideration

To claim this allowance you can use your own 2014 to 2015 payroll software or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools for 2014/15. When you make your claim (using the software of your choice), you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000.

Once a claim has been made, HMRC will automatically carry your claim forward each tax year. So at the beginning of each year you should check your circumstances haven’t changed. You will be able to see how much of the Employment Allowance you have used in ‘View PAYE Liabilities and Payments’ in HMRCs Online Service, or alternatively your software should be able to display this.

This Employment Allowance will prove to be an excellent relief for smaller businesses by reducing their staffing overheads by up to £2,000 per year. If you are unsure if you qualify or would like further details, please do not hesitate to get in touch.

Steven Metcalf, Business Services Manager, Kendal