Starter Guide to the new National Insurance Employment Allowance

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Announced in October 2013, the new Employment Allowance will benefit businesses across the board, particularly small businesses who currently employ staff. Coming into effect on 6th April 2014, the new allowance could save businesses up to £2000 worth of Employers’ National Insurance contributions. Interested in learning more about how this new scheme could benefit your organisation? We’ve distilled the basics to get you started…

Who can use the Employment Allowance?

This new scheme is available to:

– Sole traders, limited companies and partnerships who qualify as employers
– One-person limited companies who only employ their directors

You are not eligible for the Employment Allowance if you are:

– A partnership or sole trader without staff
– A company operating under IR35

Your eligibility depends on whether or not HMRC sees you as an employer. This depends on a number of factors:

– Whether you pay employee at or above the PAYE threshold
– Whether you pay an employee  at or above the National Insurance Lower Earnings Limit
– Whether you have an employee who has another job
– Whether your employee/s receive a state, company or occupational pension
– Whether you provide employee/s with employee benefits

Claiming the new Employment Allowance

If you meet any of the criteria above, you are considered to be an employer by HMRC and you should be registered as such.

If you are eligible for the allowance, you need to opt in, let HMRC know and tell them that you intend to claim it as part of your RTI (Real Time Information) submission. You’re likely to be using direct debit companies to pay your National Insurance Contribution and this will then be reduced accordingly.

How much can you claim?

A maximum of £2000 worth of NI tax cuts is available to all eligible businesses. This is not a ‘per employee’ allowance. However many employees you have, £2000 is the limit. You will receive the full allowance if your Employers’ NI contributions are £2000 or more than £2000. If they are less than £2000, you won’t receive the full amount, but enough to cover your full contribution instead.

Further key information

– You can claim the allowance at any point in the tax year
– The allowance will be used to cover your monthly Employers NI payments until the full £2000 has been met
– Directors of limited companies can be eligible but they will need to register as employee even if they are also the employer

This scheme is set to continue in future tax years so it’s well worth getting on board now.