From 6 April 2014 employers will be able to claim up to £2,000 per tax year against their secondary Class 1 National Insurance Contributions (NIC) as announced by the Chancellor in his March 2013 Budget Speech.
The allowance is available to both new and existing businesses and will thus allow a business to hire their first employee or expand its workforce. For example every business will be able to employ one worker on a salary of around £22,400, or four employees working full time on the adult National Minimum Wage, without paying any additional employer NIC.
Qualifying Businesses
ALL types of business medium such as sole traders, partnerships and limited companies, as well as charities, will qualify for the £2,000 reduction in their NIC bill.
Note however that the allowance is NOT available to domestic employers such as anyone employing a nanny, au pair, care worker, chauffeur, gardener etc. Personal service companies will not be able to set the allowance against any additional NIC payable resulting from a deemed salary calculation.
Qualifying Contributions
Up to £2,000 of employer Class 1 NICs may be offset as soon as a liability arises in the tax year, thus many businesses will be eligible to claim the full allowance in month 1 of a new tax year, commencing with 2014/15 on 6 April 2014.
Note that the employment allowance is NOT available for offset against employee NIC Class 1 primary contributions or NIC Class 1A contributions, payable by employers on employee taxable benefits.
Implementation
The allowance will be implemented under the PAYE system via HMRC’s Real Time Information from 6 April 2014. Where a business operates multiple PAYE schemes (for example where two businesses are connected) then the allowance may only be claimed once by the nominated scheme.
Access to the allowance will be possible by simply answering ‘YES’ to the question ‘Do you want to claim the NIC Employment Allowance?’ within the relevant PAYE software. Once set the claim will continue automatically from year to year.
For those employers who still submit their returns to HMRC on paper, a paper process will be available which will mirror the IT procedures.
Owner/managed companies
Although the NIC Employment Allowance is available to ‘one-person’ owner/managed companies, care needs to be taken where the remuneration of such directors has previously been capped at the min NIC earnings threshold in order to avoid any primary and secondary Class 1 NIC liabilities.
Professional advice therefore needs to taken prior to the 2014/15 tax year to ensure that profits in the form of remuneration and/or dividends continue to be extracted from the company in the most tax efficient way.
Other National Insurance News
- The percentage rates of Class 1 and Class 4 National Insurance Contributions (NICs) will remain unchanged for 2014/15 with the upper limit for employees and the self-employed continuing to be aligned at the point at which higher rate tax becomes payable, i.e. £41,865.
- From April 2015 an exemption from employer National Insurance Contributions is to be introduced for under-21 year-olds earning less than upper earnings limit of £805 per week.
- From October 2015, a new class of voluntary National Insurance Contributions (Class 3A) is to be introduced for a limited time to give current pensioners and those who reach State Pension age before the introduction of the new single tier pension from 6 April 2016 an opportunity to boost their Additional State Pension
- The Government is considering simplifying the collection of Class 2 National Insurance Contributions for the self-employed which are currently collected on a quarterly basis via direct debits. No timescale has yet been set for the implementation of a new system.
Further Advice
If you require any further advice on the implementation of the new NIC Employment Allowance or details of our professional payroll services then please call us on 01633 215544 or email us at: contact@marshvision.com
Our payroll services website page can be accessed by clicking on the following link: http://www.marshvision.com/payroll-accountants.asp
