The National Insurance ‘Employment Allowance’, originally announced in the Chancellor’s Spring 2013 Budget, will be launched in April 2014. Essentially it means that a business (or a charity or other voluntary organisation) will be excused payment of the first £2,000 of employer’s National Insurance contributions other due each tax year. This will not affect the contributions payable by employees, or the benefits accruing to them.
The reduction is called ‘the Employment Allowance’ because the Government hopes that it will encourage small firms, especially, to take on more staff. However, a firm will be entitled to the allowance whether or not it takes on new staff. Moreover, even a one-man company will be able to claim the allowance against employer’s contributions due on remuneration paid to the proprietor-director (unless the relevant earnings are caught by IR35 legislation).
A planning point for a small family company is that the shareholder-directors currently often choose to pay themselves salaries under the point at which employer’s NI contributions become payable (£7,696 for 2013/14). However, for 2014/15 it may be better to take a salary equal to the income tax personal allowance (£10,000 for 2014/15) – the point being that every extra pound taken will cost 12p in employee’s NI contributions but save 20p in corporation tax.
The Employment Allowance will not be available for domestic staff, such as a nanny or a personal carer. There will also be some anti-avoidance provisions to prevent, for example, ‘doubling up’ relief by transferring the business to a new company.
The employer will make his claim as part of his usual PAYE Real Time Information (RTI) submission. He will be able to use HMRC’s Basic PAYE Tools to do this, and the formal claim will be by way of ticking a box on his EPS submission.
NIC exemption for under-21 year olds
In his Autumn Statement the Chancellor also announced that, from April 2015, no employer NI contributions will be payable on the earnings of under-21 year olds (unless, exceptionally, their earnings exceed the NI Upper Earnings Limit, estimated to be £813 a week for 2015/16). This new exemption means, for example, that if a 20-year old is paid £12,000 a year, his or her employer will save over £500 a year in employer NI contributions. If he or she is paid £16,000, the employer will save over £1,000. The employee’s entitlement to Social Security benefits will not be affected.
The new relief will not be time-limited and will be separate from, and additional to, the £2,000 a year ‘Employment Allowance’ described above