Posted by Sally Nichols on 10 Mar 2014

Up to £2,000 off Class 1 Employment Allowance

From 6 April 2014, eligible employers can claim the Employment Allowance and reduce their employer Class 1 National Insurance contributions (NICs) by up to £2000.00 each tax year.

Employers can claim the Employment Allowance if they are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on employees’ or directors’ earnings.

If the company belongs to a group of companies or the charity is part of a charities structure, only one company or charity can claim the allowance. It is up to the employer to decide which company or charity will claim the allowance.

Employers can only claim the £2,000 Employment Allowance against one PAYE scheme – even if their business runs multiple schemes.

How to claim Employment Allowance

The Employment Allowance will be straightforward to claim.

As part of the normal payroll process & Real Time Information (RTI), an employer reduces their employer Class 1 NICs payment by an amount of Employment Allowance equal to the employer Class 1 NICs due for the month up to a maximum of £2,000 per year.

For example,  If Class 1 NICs are £1,200 each month, in April the Employment Allowance used will be £1,200 and in May £800.

Once made, HMRC will automatically carry the claim forward each tax year. So at the beginning of each year, employers should check that their circumstances haven’t changed.

Employers will be able to see how much of the Employment Allowance they have used by registering for HMRCs Online Service and looking at ‘View PAYE Liabilities and Payments’.

Exempt employers using HMRC paper returns

Employers who are exempt from filing, or unable to file online, can claim the Employment Allowance, at the beginning of the tax year, using the paper Employer Payment Summary (EPS).  More information will be included in guidance provided by HMRC to all exempt employers

Excluded employers

 Not all Employers can claim the Employment Allowance.  Employers cannot claim the Employment Allowance if they:

  • Employ someone for personal, household or domestic work i.e a nanny, au pair, chauffeur, gardener, care support worker.
  • Already claim the allowance through a connected company or charity.
  • Are a public authority, this includes; local, district, town and parish councils.
  • Carry out functions either wholly or mainly of a public nature (unless  they have charitable status), for example:
    • NHS services.
    • General Practitioner services.
    • The managing of housing stock owned by or for a local council.
    • Providing meals on wheels service for a local council.
    • Refuse collection for a local council.
    • Prison services.
    • Collecting debt for a government department.

You do not carry out a function of a public nature, if you are:

  • Providing security and cleaning services for a public building, such as government or local council offices.
  • Supplying IT services for a government department or local council.

Personal and Managed Service Companies who pay contract fees instead of a wage or salary, may not be able to claim the Employment Allowance, as the allowance cannot be claimed for any deemed payments of employment income.

Service companies can only claim the allowance if they pay earnings and have an employer Class 1 NICs liability on these earnings.

Contact Tax Innovations

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com.