Employment Allowance: Who qualifies, and what does it offer?

May 24, 2014 By SGW Payroll | Pension enrolment

From the beginning of the 2014-2015 financial year, a new incentive – Employment Allowance – will enable certain employers to reduce their Employers’ National Insurance Contributions. (https://www.gov.uk/employment-allowance-up-to-2000-off-your-class-1-nics#ee)

The amount by which the NICs can be reduced by is £2000, but there are some employers that do not qualify for the discount – and for those who do, some conditions apply.

Who is eligible for Employment Allowance?

All businesses and charities paying Class 1 NICs on the earnings of their employees or directors can claim the allowance. However, only one organisation that is part of a group of companies or charities can claim it. Also, it can be claimed against one PAYE scheme only.

Self-employed people can also claim Employment Allowance: provided they are liable to pay NICs on their earnings, they qualify.

Who cannot claim Employment Allowance?

You cannot claim the allowance if you pay contract fees rather than wages/salaries, nor can you do so if you are a service company that does not pay earnings with a Class 1 NICs liability.

Public sector organisations (including local authorities) also cannot claim the allowance, nor can organisations whose functions are predominantly of a public nature (e.g. NHS or GP services, refuse collectors).

There is an exception, however, for such companies with charitable status – as well as for companies providing IT, security or cleaning services to public bodies. Full eligibility details are available from the Government’s website.

(https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance)

Many businesses will benefit

According to a letter to small businesses (http://www.fsb.org.uk/policy/assets/employment-allowance-chancellor-letter.pdf) from the Chancellor of the Exchequer, George Osborne, the Employment Allowance will benefit 1.25 million businesses, which can all look forward to paying less. Around 450,000 of these may pay no Employers’ NICs at all under the new rules.

Those benefiting in this way are small businesses. For example, if a business employs four people on National Minimum Wage, the Employment Allowance means that they will make no contribution at all. The incentive was welcomed by the British Chambers of Commerce whose director, John Longworth, said:

“The new Employment Allowance will help our smallest companies take on staff, and will give many businesses an important boost of confidence. In particular, this measure will create a strong incentive for a new or start-up business to hire its first employee.”

(http://www.britishchambers.org.uk/press-office/press-releases/queens-speech-business-will-welcome-less-is-more-approach,-says-bcc.html)

What will businesses do with the savings?

The money saved can be used for business development, which may include hiring more staff, paying current staff higher salaries, or investing in resources.

The necessary calculations for Employment Allowance will, of course, have to be made as part of businesses’ payroll – and whilst this new incentive will doubtless be welcomed by bosses and finance directors, it is yet another figure to take into account.

Companies can use some of the money they have saved by outsourcing their payroll to a specialist service such as SGW Payroll. We provide payroll services for a wide range of businesses and charities throughout the UK, and are fully equipped to factor in Employment Allowance and other incentives and benefits.

Using SGW Payroll means that, as a small business, you will have more time to devote to strategy and development. Your staff will be happy because our service will ensure that they are paid correctly, and you will not have to worry about dealing with HMRC as a result of any errors in calculation.

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