Employers - are you claiming the new £2,000 NIC Employment Allowance?

The new tax year (2014/2015) sees the introduction of the Employment Allowance. George Osborne recently contacted all employers reminding them of its implementation and claiming 1.25 million businesses and charities will benefit from cutting £2,000 from their employer Class 1 National Insurance Contributions (NICs).

Indeed, HM Treasury anticipate that it will remove approximately 450,000 businesses from the requirement to pay National Insurance Contributions altogether. The figures quoted above are certainly impressive if proved to be correct, but as is so often the case with new pieces of legislation, the devil is in the detail. This is especially pertinent when considering your business’ eligibility. The allowance isn’t available to all employers as there are exceptions as to who can claim it. Employers need to make sure they understand the rules correctly or face the possibility of having to pay interest and penalties on underpaid contributions due to incorrect claims. We suggest that you familiarise yourself with the following guidance to make sure you are making the claim correctly and thus avoiding any potential surprises. Who is eligible? You can claim the allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings. The allowance is not a ‘carte blanche’ however, and in certain circumstances cannot be claimed against all PAYE schemes.
  • If the employer has multiple PAYE schemes for different parts of the business or charity, the employer is only entitled to claim the allowance against one PAYE scheme.
  • A sole trader who has two separate unincorporated businesses, with separate PAYE schemes can also only claim the employment allowance against one PAYE scheme.
  • If a company has control of other companies, or two or more companies are under the control of the same person or persons, for example companies linked in a group – these companies are connected and only one employment allowance can be claimed against one PAYE scheme. The rules in place for determining if companies are connected are similar to the ‘associated companies’ rules for Corporation Tax.
  • Charities that are connected as part of a charity structure follow the same principle as connected companies.
Excluded employers There are certain exceptions where employers may not use the allowance to offset their employer Class 1 NIC liability.
  • You employ an individual for personal, household or domestic work, including for example housekeeper, nanny, care support worker, gardener etc.
  • You are a public authority which could include local, district, town and parish councils
  • You carry out functions either wholly or mainly of a public nature (more than 50% of your work is in or for the public sector). This will apply to all Doctor and Dentist practices. Subject to the connected charities rules, registered charities can claim the allowance, even if they are carrying out functions that are wholly or mainly of a public nature.
How to claim Employers can use their own payroll software to give notice to HMRC of the PAYE scheme from which the deductions will be made. This notice will be made by selecting a ‘yes’ field within the Employer Payment Summary (EPS). In a situation where the software does not supply the EPS, you should use HMRC’s Basic PAYE Tools (BPT) to make the claim. Following the notice to claim, employers must reduce their employer Class 1 NIC payment by an amount of employment allowance equal to the employer Class 1 NIC due. It should be noted that the employment allowance is capped at either the lower of the total employer Class 1 NIC due throughout the tax year or £2,000. An employer can make the claim at any point in a tax year and if the claim is missed in a tax year, has up to 4 years after the end of the tax year in which the claim applies to make the claim. Unused allowance If an employer with one PAYE scheme fails to use the ‘available’ employment allowance by the end of the tax year, HMRC will use the balance against any PAYE debt or liabilities in the following tax year. If the employer does not have any existing PAYE debt or liabilities, the balance of the allowance can be claimed as a repayment. If an employer runs a business with more than one PAYE scheme and does not use the full £2,000 allowance against the nominated PAYE scheme, but has incurred an employer Class 1 NICs liability on any other PAYE schemes, the employer can apply to HMRC (at the end of the tax year) for a refund of any unused balance. The unused balance will be the lesser of £2,000 or the total employer Class 1 NIC liability for all of your PAYE schemes, less the allowance already given against your nominated PAYE scheme. Where separate businesses are involved and they are deemed to be connected, the availability to claim any unused employment allowance against the other business’ PAYE scheme(s) is dependent on whether the separate businesses are set up as incorporated (limited companies) or as unincorporated (sole trader) businesses.
  • If two or more incorporated businesses (companies) are connected and the company who has claimed the employment allowance has employers Class 1 NIC of less than £2,000 in the tax year, the unused allowance cannot be set against the other company’s PAYE scheme.
  • If two or more unincorporated businesses (sole trader) are connected and the employer Class 1 NICs on the nominated PAYE scheme are less than £2,000, a request can be made to request that the unused balance is set against the PAYE scheme of the other business after the end of the tax year.
For companies that are connected, it is essential to make the claim in the “correct” company at the outset or potentially lose out on some of the £2,000. Record keeping Employers must keep any records that relate to their claims, for a minimum period of 3 years after the end of the tax year in which the employment allowance was claimed. Conclusion Further detailed guidance is available on HMRC’s website however it is apparent there are many areas in the guidance that need clarification. For example it is not yet clear how the administration process of refunds and reallocations will work. Should you need further assistance in this area, we would be happy to explain how the Employment Allowance will affect your own particular circumstances. To find out more, please contact us by clicking here.