New £2,000 Employment Allowance from 6 April 2014

From April 2014 most business, charity and community amateur sports club (CASC) will be entitled to an annual ‘employment allowance’ of up to £2,000 to reduce their liability for employer’s Class 1 Employer National Insurance Contributions (NICs).

To keep the process as simple as possible for employers, the employment allowance will be delivered through standard payroll software and HMRC’s Real Time Information (RTI) system. HMRC will add a facility to the RTI Employer Payment Summary (EPS) referring to the employment allowance in the form of a ‘yes/no’ indicator and payroll software providers will do the same. HMRC will amend its basic PAYE tools to have an EPS facility to help those employers who do not have such a facility on their software.

Qualifying Contributions

Up to £2,000 of employer Class 1 NICs may be offset as soon as a liability arises in the tax year, thus many businesses will be eligible to claim the full allowance in month one of a new tax year, commencing with 2014/15 on 6 April 2014.

Note that the employment allowance is NOT available for offset against employee NIC Class 1 primary contributions or NIC Class 1A contributions, payable by employers on employee taxable benefits.

Who will benefit ?

This new allowance will particularly benefit smaller businesses looking to hire additional employees, as it will lower the costs of employing staff.

The Government estimates that up to 1.25m employers will benefit – with over 90% of the benefit going to small businesses with less than 50 employees. The Government also expects that around 450,000 of small businesses in the UK will not pay any employer NICs at all. Employers with less than 10 employees over the year will, on average, see an 80% reduction in their employer NIC liability.

Who qualifies?

All types of businesses such as sole traders, partnerships and limited companies, as well as charities, will qualify for the reduction.

Note however that the allowance is NOT available to domestic employers such as anyone employing a nanny, au pair, care worker, chauffeur, gardener etc. Personal service companies will not be able to set the allowance against any additional NIC payable resulting from a deemed salary calculation.

How to claim?

To claim the allowance, the employer will have to signify their intention to claim by completing the yes/no indicator just once. The employer will then offset the allowance against each monthly Employer’s NIC payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends.

The employment allowance will apply per employer, regardless of how many PAYE schemes an employer has in operation, so each employer can only claim for one allowance.

How to find out more information?

For more information on the employment allowance or any payroll matter please contact James Heming on 0800 298 3899.

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