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Employers’ national insurance: are you making the most of tax-saving opportunities?

National insurance contributions (NICs) can represent a significant cost for many businesses, but recent changes to the regime may present opportunities for employers to reduce their NIC liability in some cases.

Claim the Employment Allowance
Most businesses, charities and Community Amateur Sports Clubs can now reduce their employers’ Class 1 NIC liability through the Employment Allowance. Originally set at £2,000, the allowance was increased to £3,000 from April 2016 in a bid to help businesses with the increased costs associated with the introduction of the National Living Wage.

The Employment Allowance can be claimed via payroll software or HMRC’s Basic PAYE Tools. It is an ongoing allowance, so once an employer has made a claim it will automatically apply to future years until HMRC is informed otherwise. Do contact us if you believe you are entitled to the allowance as it is possible to claim up to four years after the end of the tax year in which the allowance applies.

Please note that from April 2016 companies where the director is the sole employee are no longer able to claim this allowance.

Employ an apprentice
April 2016 saw a ‘zero rate’ introduced for ‘relevant’ apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 in 2016/17. This effectively means that employers are no longer required to pay Class 1 secondary (employer) NICs on earnings paid to qualifying apprentices. To qualify for this exemption the apprentice must be aged under 25 and taking part in a government-recognised apprenticeship within the UK.

Consider younger workers
Businesses looking to take on additional staff might want to consider employing younger workers. Since April 2015, employer NICs for those under the age of 21 are reduced from the normal rate of 13.8% to 0%. The exemption applies to earnings up to the UST (£827 per week) for those employees. Earnings above this limit are subject to 13.8% employer NICs. For the 0% rate to apply, an employee will need to be under 21 when the earnings are paid. The employee will still be liable to pay employee NICs.

Consider dividends
Historically, it has been favourable for a director-shareholder to take dividends rather than a salary. This is because a dividend is paid free of NICs, whilst a salary or bonus can carry up to 25.8% in combined employer and employee contributions. April 2016 saw significant changes to the taxation of dividends, and although the amount of tax saved is likely to be reduced under the new system, there may still be a tax benefit for a director-shareholder in taking a dividend over a salary. However, the decision on whether to pay a dividend is complex and it is important to consider the wider implications, such as the availability of profits in the company to pay a dividend.

Salary sacrifice and non-cash benefits
Combining benefits with a properly arranged salary sacrifice can result in considerable savings for both employer and employee. A salary sacrifice arrangement, whereby an employee gives up the right to receive part of their cash pay in return for some form of non-cash benefit, could result in a lower tax and NICs bill for both the employer and employee as the non-cash benefits may be wholly or partially exempt from tax and NICs.

Such benefits-in-kind may include the provision of childcare or pension contributions. A salary sacrifice scheme needs careful planning to implement – please get in touch if you wish to consider such an arrangement.

For more information on national insurance planning, please contact us.