Claiming the new NICs Employment Allowance

In the 2013 Budget, Chancellor George Osborne announced plans to introduce a new Employment Allowance designed to reduce the employer national insurance liability for businesses and charities, and to encourage businesses to expand and take on new staff.

Since April 2014 most businesses, charities and Community Amateur Sports Clubs in the UK have been entitled to claim up to £2,000 off their employer national insurance contributions (NICs) bill.

How it works

The new Employment Allowance is delivered through standard payroll software and the HM Revenue & Customs (HMRC) Real Time Information (RTI) system.

To confirm their eligibility and claim the allowance, employers must notify HMRC by completing the yes/no indicator on the RTI Employer Payment Summary. They will only need to do this once. The employer's payroll software will then automatically offset the allowance against each monthly employer 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 continue to be available as an offset against the same employer's NICs liability as it arises during the tax year. A similar process is available to those few employers who still submit their returns on paper.

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

Who will benefit

The Government estimates that up to 1.25 million businesses and charities will benefit from the measure, while around 450,000 businesses are expected to be taken out of paying employer national insurance altogether in 2014/15. 90% of the benefits are expected to be seen by small businesses with fewer than 50 employees.

Exclusions

It is not possible to claim the Employment Allowance in the following circumstances:

• You employ an individual for personal, household or domestic work (e.g. a nanny or a gardener).
• You already claim the allowance through a connected company or charity
• You are a public authority, including local, district, town and parish councils
• You carry out functions wholly or mainly of a public nature (unless you have charitable status).

Personal Service Companies and Managed Service Companies who do not pay a wage or salary may not be able to claim the Employment Allowance. Service companies can only claim if they pay earnings and have an employer Class 1 NICs liability on those earnings.

If you need guidance on this area please do get in touch so that we can offer specific advice.