The new Employment Allowance - what does it mean?
Many of our clients have just received a letter from 10 Downing Street telling them about a new Employment Allowance which could take £2000 off the NI bill. Here we'll briefly explain what it means and how to claim it....
Here's the facts in brief:
- The Employment Allowance was announced in the October 2013 budget and is available from 6 April 2014. If you are eligible you can reduce your employer Class 1 NICs by up to £2,000 each tax year.
- You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees' or directors' earnings.
- If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. It is up to you to decide which company or charity will claim the allowance.
- You can only claim the £2,000 Employment Allowance against one PAYE scheme - even if your business runs multiple schemes (also see the further guidance on claiming the Employment Allowance).
Who is excluded?
It's easier to explain who's out then who is in; basically, you're in unless you:
- employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
- already claim the allowance through a connected company or charity
- are a public authority, this includes; local, district, town and parish councils
- carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
- NHS services
- General Practitioner services
- the managing of housing stock owned by or for a local council
- providing a meals on wheels service for a local council
- refuse collection for a local council
- prison services
- collecting debt for a government department
If you think this may affect you, check out the detail on the Government web site.
How much is it worth to me?
The Government has very kindly published an online calculator so you can work out how much it's worth to you. Try it out, or just have a look at what you pay in Employers NI each month, and starting with April, cut the Employers NI down for each month until you get to a saving of £2000. If your total annual Employers NI contribution is less than £2000 you'll just get the amount you would otherwise pay.
For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000.
How to claim?
By now the requirements of RTI reporting have forced most small businesses to use a payroll bureau but if you're still running your own payroll software, it should be able to do this automatically. Just tick the relevant box on your software, or if you do use a payroll bureau or bookkeeping service, check with them that they know you want to claim.
Any problems or concerns, please do get in touch.