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The new Employment Allowance and your business

In an effort to support businesses and charities with the cost of employment, the Government is introducing a much-anticipated new Employment Allowance, worth up to £2,000.

What is it?
One of the most notable – and welcome – measures to come from the Chancellor’s 2013 Budget, the new Employment Allowance will enable businesses and charities to reduce their national insurance liability by up to £2,000. The measure comes into effect on 6 April 2014 and applies to businesses, charities and Community Amateur Sports Clubs.

Employers will need to confirm their eligibility through their regular payroll process, which will then ensure that up to £2,000 will be deducted from their employers’ Class 1 national insurance contributions (NICs) liability over the course of the year’s PAYE payments.

Who will benefit?
The Government estimates that around 1.25 million employers will benefit from the measure, while 450,000 businesses are expected to be taken out of national insurance altogether in 2014/15.

The new allowance will undoubtedly come as welcome news to many businesses, providing additional funds for those seeking to take on more staff, and a reprieve for firms struggling with cash flow issues.

How will it work?
HM Revenue & Customs (HMRC) intends to deliver the new Employment Allowance through standard payroll software and its Real Time Information (RTI) system. A ‘yes/no’ Employment Allowance indicator facility will be added to the RTI Employer Payment Summary (EPS) and payroll providers will also be required to update their software in the same way.

To claim the allowance, employers will need to notify HMRC by completing the yes/no indicator. They will only need to do this once. The employer’s payroll software will then offset the allowance against each monthly Class 1 secondary NICs payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends. For the following tax year, it is proposed that the allowance will be available as an offset against a Class 1 secondary NICs liability as it arises during the tax year.

A similar process will mirror the IT procedure where an employer still submits their returns on paper.

The Employment Allowance will apply per employer and can only be claimed once, irrespective of how many PAYE schemes the employer chooses to operate. It will be up to the individual employer to decide which PAYE scheme to claim it against.

Please note that this article is based on the draft legislation available at the time of posting. For further advice and strategies to help keep your tax liability to a minimum, please contact us.