The Employment Allowance scheme, launched in April 2014, allows certain businesses to forego their first £2,000 of Employers National Insurance contributions, meaning around 450,000 of the UK’s smallest businesses will no longer have to pay Employer NICs at all.
Who is eligible for Employment Allowance?
All employers who pay Class 1 National Insurance on their employee’s earnings are eligible for the new Employment Allowance scheme – however most freelancers and contractors (who pay Class 2 and Class 4 NICs) cannot use the Allowance. You also cannot claim the HMRC Employment Allowance if you:
- Personally employ someone for domestic work (e.g. a nanny or gardener)
- Provide services in the public sector
- Provide services (e.g. IT contracting) to a public sector body
What are the rules?
Unlike other HMRC giveaways (for example staff Christmas parties) which are one-time exemptions, the Employment Allowance is just that – an allowance. Eligible businesses may use up to the £2,000 limit every tax year. Employer National Insurance contributions are charged at various rates, but a full-time employee with a salary of £22,000 will incur Employer NICs of £161.51 per month, or £1,938.12 per year.
This means a company with one employee paid £22,000 per year can write off their Employer NICs entirely, as their payments are under the £2,000 Allowance. By comparison an employee paid £27,000 per year will generate £2,628.12 in Employer NICs per year. Under the Employment Allowance, the first £2,000 can be written off, leaving £628.12 payable for the tax year.
Employer contributions above £2,000 will only be paid once the Employment Allowance has been exhausted, so in the example above you would pay no Employer NICs for the first nine months of the tax year, £190.10 in the tenth month, and £219.01 for the eleventh and twelfth month to total £628.12.
How do I claim the Allowance?
Your Payroll automatically subtracts the Employment Allowance from your Employer NICs as part of the payroll process.
Speak to a member of our team for further information about the Employment Allowance, or to discuss your payroll requirements on 0151 949 5442 or contact us here