From April 2014, eligible employers will benefit from a reduction of up to £2000 per year in their employer Class 1 NIC’s liability. Throughout the UK over 1 million businesses and charities will gain from the new Employment Allowance and the smaller employers will benefit the most pro-rata. In fact, roughly 450,000 of the smallest employers, where their employers NIC liability falls below £2000, will end up paying no employers NIC to HMRC.
The allowance will not be given automatically, but will need to be claimed. We will, of course, be making the claim on behalf of all those clients for whom we prepare the payroll. The claim is very easy to make, but any other client who needs assistance should contact Sara who will be pleased to help.
Only employer Class I NIC liabilities are affected, and the allowance will be offset against these liabilities when they are due to be paid. This will start in month 1 of the tax year and continue until the full £2,000 is used up or the tax year ends, whichever is soonest. For example, let us take an instance of an employer paying fixed salaries each month and assume that the deductions each month are £1,000 for PAYE, £600 for employees NIC and £700 for employers NIC. In April and May, the employers NIC contribution will be reduced in full, resulting in a liability each month of £1,600. In June there will be £600 of the allowance remaining meaning that £100 of the employers NIC will be payable, resulting in a total liability of £1,700. In July and future months, the full liability of £2,300 will be payable.
There are a number of employers who cannot claim the allowance, the main one being Managed Service Companies. For more information, including full details of how to claim and who is not eligible, go to www.hmrc.gov.uk/nicsemploymentallowance.