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The NICs Employment Allowance

Simon ParsonsIn the March 2013 Budget, the Government announced the creation of a new National Insurance Contributions (NICs) Employment Allowance, with a planned start date of 6 April 2014.

In this article Simon Parsons looks at who can claim and the payroll process involved.

Who can claim?

For eligible employers, the NICs Employment Allowance can reduce their employer Class 1 NICs by up to £2,000 each tax year – it cannot however be used to offset Class 1A or Class 1B NICs.

The intention is that businesses and charities (including Community Amateur Sports Clubs) that pay employer Class 1 NICs on employees’ or directors’ earnings can qualify.

There are excluded employers who cannot claim Employment Allowance. For example:

  • domestic schemes (nanny, au pair, chauffeur, gardener, care support worker)
  • public authority, NHS, GPs, Local authority housing management, meals on wheels service, refuse collection for LA, prison service, Government debt collectors
  • Personal and managed service companies (contractors).

Claiming the Employment Allowance

If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. It is up to you to decide which company or charity will claim the allowance – you can only claim the £2,000 Employment Allowance against one PAYE scheme.

It is not possible to move an existing claim from one scheme to another. However, when moving into a new tax year, you can stop a scheme and nominate a different scheme, for that new year, before you make any NICs or PAYE payments to HMRC.

To keep the process as simple as possible for employers, the Employment Allowance claim will be facilitated by the Real Time Information (RTI) Employer Payment Summary (EPS) as a single one off “yes/no” indicator.

This can be undertaken by any sized employer using the HM Revenue & Customs (HMRC) Basic PAYE Tools or via their payroll software where an EPS capability is present. If you are exempt from filing, you can claim the Employment Allowance, at the beginning of the tax year, using the paper EPS.

There are no reclaim values to be entered each period on the EPS, or any values recorded against employee records.

What happens in a new tax year?

HMRC will automatically carry forward the claim into the following new tax year. So as an employer you need to check annually your circumstances, to ensure that you are still eligible and have not lost future entitlement.

Where the nature of the business changes and the entitlement to Employment Allowance is no longer applicable, as an employer you must stop the claim by using the EPS facility.

If as an employer you do not use all of the £2,000 entitlement against the nominated PAYE scheme, but there are other PAYE schemes in the group, then at the end of the tax year you can apply to HMRC for a refund of the unused balance.

In reality there is little change for payroll. The impact is on the offsetting of the allowance from the relevant PAYE scheme pay-over to HMRC. See the full Employment Allowance: further guidance for more detailed information on the rules and claim process.

Simon Parsons | Director of Payments, Benefits & Compliance

Keep up-to-date with Simon’s regular news and legislation updates on the Ceridian & UK Legislation LinkedIn group.

  • 16th February 2014
  • Payroll
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