Employers could soon save up to £2,000 on their National Insurance contributions (NICs) through a new Government initiative.
A new Employment Allowance will be available from 6 April 2014 for eligible employers, allowing them to dramatically reduce Class 1 NICs.*
Can I claim?
Any business or charity that pays employer Class 1 NICs on employee or director earnings can claim.
However, if you belong to a group of companies or part of a charities structure, only one company or charity can make a claim.
You can also only claim £2,000 for one PAYE scheme – even if your business runs multiple schemes. Not all businesses can claim the Employment Allowance.
You cannot claim the Employment Allowance, for example, if you:
- 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)
Personal and Managed Service Companies who pay contract fees instead of a wage or salary, may not be able to claim the Employment Allowance, as you cannot claim the allowance for any deemed payments of employment income.
Service companies can only claim the allowance, if you pay earnings and have an employer Class 1 NICs liability on these earnings.
How to claim your Employment Allowance
You can use your own payroll software – through your payroll provider – or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools to claim the Employment Allowance.
When you make your claim, 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 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.
HMRC will automatically carry your claim forward each year – so at the beginning of each tax year you should check that your circumstances haven’t changed.
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* subject to Parliamentary approval.