Employment allowance – what is it?
From 6th April 2014 employers can reduce the amount of National Insurance contributions (NICs) they pay for their employees by up to £2,000. This is great news for small businesses as they won’t have to pay any employer’s National Insurance contributions if they usually pay less than £2,000 per year.
However, the employment allowance does not apply to employee’s National Insurance contributions – you still need to pay this!
The Employment Allowance applies to most businesses that pay Class 1 National Insurance contributions on their employees’ and directors’ earnings. There are some small businesses that cannot claim if they:
- 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
- carry out functions either wholly or mainly (>50%) in the public sector (with the exception of (i) providing security and cleaning services for a public building, such as government or local council offices; or (ii) supplying IT services for a government department or local council)
If you do not employ staff, it obviously will not apply. From the perspective of owner managed businesses, it does apply for:
- Single person limited companies that only employ a director
- Limited companies that employ multiple staff
- Sole traders who employ staff
If you are operating under IR35, you cannot claim the employment allowance for any deemed payments of employment income!
How do I claim it?
If you are using payroll software for 2014/2015 and you are eligible for the employment allowance there will be field in the employer set up to activate the employment allowance. Once activated, an RTI submission will instruct the HMRC and the payroll software will manage the calculations. If you are using a payroll provider they should have already discussed this with you!