The Budget 2014 Debugged (Part 3) – The Employment Allowance

We’re following on from our last Budget 2014 post and bringing you more information about it; this time we’ve got all the facts on Employment allowance debugged.

So what is Employment Allowance?

‘The Employment Allowance’ is part of the Government’s ongoing package for businesses and charities that have employees who incur an employer secondary Class 1 NICs liability.

Since 6^th April 2014, these companies are entitled to claim back (i.e. reduce) a maximum of £2,000 every tax year from their employers Class 1 National Insurance (NIC).

Who can and cannot claim the allowance?

Most employers and charities in the UK will be able to claim the Employment Allowance. However, there are some exceptions. For example, if you:

·      Employ someone for personal, household or domestic work, such as a nanny or care support worker

·      Already claim the allowance through a connected company or charity

·      Are a public authority (including local, district, town and parish councils)

·      Carry out functions either wholly or mainly of a public nature. This is different if you have charitable status such as NHS services.

Moreover, self-employed people are not eligible for the Employment Allowance. The policy overlooks the majority of small businesses, freelancers and contractors. This is primarily due to the self-employed paying Class 2 and Class 4 National Insurance Contributions.

How do you claim Employment Allowance?

The main way to claim Employment allowance is through commercial Payroll software such as Sage One Payroll. This will reduce your monthly (or quarterly) Class 1 NIC liability to HMRC.

For example if your monthly employers Class 1 NIC bill is always £1,200, in April you can offset £1,200 of your Employment Allowance and then use the remaining £800 in May to take the maximum allowance of £2,000.

How much impact will this scheme have? 

The Government estimates that 1.25 million businesses will be able to take advantage of the Employment Allowance. Moreover, if everyone of those businesses utilised the scheme, a total of £2.5 billion will be wiped off the tax bills of UK businesses.