NICs Employment Allowance Changes: Who Will Be Affected?
From April 2016, the amount of NICS Employment Allowance that a business can claim rose by £1,000 and now stands at £3,000 per year. Is your business receiving all that it can?
Introduced back in April 2014, the National Insurance Contributions (NICs) Employment Allowance was introduced to help support businesses and charities to grow by cutting the cost of employment. The initiative works by reducing the amount of NICs that a business pays, which in theory then helps them to reinvest back into their workforce.
Who will it affect?
Most employers qualify for Employment Allowance, including businesses and charities. The big change from April 2016 is that businesses with a sole employee who is a director are no longer eligible to claim.
If your business is eligible and has multiple PAYE schemes, you can only claim for one PAYE scheme. To help make the most of your entitlement, you should pick the scheme which you predict your employer Class 1 NI Liability will most like amount to at least the annual employment allowance amount. After this is chosen, inform HMRC which scheme you’ll be selecting.
How do I claim?
You can claim Employment Allowance through your payroll software package by selecting “Yes” in the ‘Employment Allowance Indicator’ field. When you make your claim, you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £3,000 per year.
For example, if your employer class 1 NICs are £2,200 each month, in April, your employment allowance used will be £2,200 and in May £800, as the maximum is capped at £3,000.
In addition to this, you must inform HMRC that you are claiming Employment Allowance. You only need to do this once via the Employer Payment Summary (EPS). When you send your EPS, you will not see on there any mention of the employment allowance but this is correct, so do not worry about it. If you do not submit this on an EPS, it will appear as an underpayment.
HMRC will automatically carry your claim forward each tax year, so at the beginning of each year you should check to make sure that your circumstances haven't changed. You can also claim a £2,000 amount for the previous tax year.
For more information on this and how IRIS can help you, you can view our employment allowance FAQ page.