Payroll and related taxes as a topic is not something we have covered yet on this blog so with the introduction of the £2,000 employment allowance starting April 2014 now is as good a time as ever to start taking a look into payroll as an area.

Announced back in the 2013 Budget the employment allowance gives employers £2,000 off their annual National Insurance bill (Employer’s National Insurance) starting April 2014 onwards.

In a nutshell:

  • The £2,000 allowance reduces Employer’s National Insurance liability per annum
  • It starts from the 2014/15 tax year with no end date yet announced
  • The allowance is available to every business, charity and CASC (Community Amateur Sports Club)
  • The allowance is split for groups of companies/charities
  • The guidance on the allowance can be downloaded from the Gov.Uk website.

Employment Allowance Infographic

employment allowance(click to enlarge)

 

 

How to claim your Employment Allowance

Employers can choose to use either the HMRC basic PAYE tools or their own software to claim the allowance.

When making the claim you reduce your Employer’s Class 1 National Insurance amount until the allowance is used up. For example if your Employer’s Class 1 National Insurance amount is £500 per month then in month 1 April 2014 you would use up £500 of the allowance and carry forward £1,500 to May 2014. If the figure remained the same then in May 2014 you would claim another £500 leaving £1,000 to carry forward to June 2014, repeating the process until the £2,000 allowance has been used up.

Can all employers claim the allowance?

No.

You cannot claim the Employment Allowance if you fall into any of the below categories:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • are a public authority, this includes; local, district, town and parish councils
  • carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:

    • NHS services
    • General Practitioner services
    • the managing of housing stock owned by or for a local council
    • providing a 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 you cannot claim the allowance for any deemed payments of employment income.