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Employment Allowance Basics – £2,000 NI cut for small businesses

The Government has released new guidance in advance of the new ‘Employment Allowance’ launch in April, which will reduce the amount of Employers’ National Insurance Contributions payable by small firms by up to £2,000.

NI Employment Allowance

New concession to promote growth

From 6th April, following the introduction of the new tax incentive, the Government has stated that 1.25m businesses will pay less employers’ NICs, and an estimated 450,000 will may no NICs whatsoever.

According to research carried out by the Federation of Small Businesses, 29% of business owners plan to use the savings to boost staff wages, 28% plan to hire additional staff, and just under a quarter will invest more money in resources.

Commenting in advance of the scheme’s launch in two months’ time, George Osborne said:  “This new tax cut is part of our long term economic plan to back businesses investing in jobs. That is how you deliver greater economic security for hardworking people.”

Employment Allowance – the basics

  • The scheme starts on 6th April 2014.
  • Eligible businesses can claim a discount of up to £2,000 from their employers’ NI liabilities each tax year.
  • The Allowance can only be claimed against a single PAYE scheme (some businesses operate multiple payroll schemes).
  • You can move your claim to another PAYE scheme, but not during the current tax year. You need to stop claiming for one scheme before the end of the current tax year, and nominate an alternative scheme before the new tax year begins.
  • Claims can be made via existing third party software products, or HMRC’s Basic PAYE tools. If your software provider has not yet supplied the Employer Payment Summary (EPS), then you should use the HMRC tools.
  • To make a claim, firms should deduct a cumulative amount of up to £2,000 from their monthly Employers’ NIC bill. For example, if your firm’s total Employers’ NI bill is £500 each month, you will not pay any NICs for four months in a row, by which time the total £2,000 has been used up.
  • Some types of employer cannot claim the Allowance, such as suppliers of personal, household and domestic workers, public authorities, and companies who carry out work which is mainly of a ‘public’ nature (where 50% of their work or more is in or for the public sector).
  • The self-employed can use the scheme if they have an NIC liability on earnings (i.e. sole traders and partnerships).
  • Service companies can only claim the allowance if they pay salaries, and have an NIC liability on these earnings.
  • You cannot claim the Allowance if your limited company is caught by IR35, and makes a deemed payment.

Further Information

You can access a broad overview of the HMRC Employment Allowance guidance here.

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