The Employment Allowance has been available since 6 April 2014, providing up to a £2,000 per tax year reduction in an employer’s Class 1 National Insurance (NI) contributions.
The Government has announced a positive uptake in the first six months since its introduction with a national average uptake of 68%. Regionally, in the South West, we are just slightly ahead of the game with a 70% uptake. This still does, however, leave nearly a third of eligible employers that have yet to take Mr Osborne up on his offer of reducing their annual NI bill.
Interestingly, a survey carried out by the Federation of Small Businesses reveals for those claiming the Employment Allowance, the savings have already been put to good use. 18% of small businesses have used it to increase wages, whilst 17% have put the money into recruiting new staff.
Who is eligible?
Most employers paying Class 1 NI on their employees’ and directors’ earnings are eligible for the Employment Allowance. There are a few exclusions, however, including:
- businesses completing functions either wholly or mainly (i.e. more than 50%) of a ‘public nature’;
- employers that employ personal or domestic staff, such as nannies, chauffeurs, gardeners and personal care support workers; and
- service companies with only ‘deemed’ payments of employment income.
In the case of connected businesses, or businesses with more than one PAYE scheme, only one can claim the allowance, but you can decide which one claims. Companies are considered connected if one company has control over the other, or both companies are under the common control of the same individuals or companies.
How does this work in practice?
You can claim the allowance using your payroll software or HMRC’s Basic PAYE Tools. You must then reduce your Class 1 Employer’s NI payment by up to £2,000. If, in the first month, you do not have a sufficient Class 1 Employer’s NI liability to claim the whole £2,000, the excess is carried forward.
Once you have made a claim, HMRC will automatically carry forward the claim each tax year.
What happens if I claim late?
Do not worry if you have not claimed yet, there is still time! It is possible to apply at any time during the tax year to benefit from the Employment Allowance. The allowance will then be applied to your next NI bill.
For example, if your employer’s Class 1 NI bill is, say, £1,500 each month, then in the first month you would claim a £1,500 reduction in your Class 1 NI bill (i.e. reducing it to £nil) with the £500 remaining allowance reducing the second month’s Class 1 NI bill to £1,000.
If, in the example above, you did not claim the allowance until, say, March 2015 and hence had not used your full Employment Allowance entitlement by the end of the tax year, it is possible to request that HMRC either:
- use any allowance that’s left at the end of the year to settle any outstanding tax, NI or VAT liabilities; or
- provide you with a refund after 5 April 2015 if you don’t have any outstanding liabilities.
If you have any questions on the Employment Allowance, including how it operates and whether you would be eligible to claim, please do get in touch with our Hazlewoods tax team.