From 6th April 2014, UK employers can claim the Employment Allowance and reduce their Class 1 National Insurance contributions (NICs).
Those eligible for the Employment Allowance can reduce their employer Class 1 NICs by up to £2,000 each tax year.
Employers can claim the Employment Allowance if they are a business or charity – including Community Amateur Sports Clubs – that pays employer Class 1 NICs on their employees’ or directors’ earnings.
Businesses that belong to a group of companies or a charity that is part of a charities structure are restricted as only one company or charity can claim the allowance. It is then a decision as to which company or charity will claim the allowance.
How to claim your Employment Allowance
Employers can use their own payroll software or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools to claim the Employment Allowance.
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 no more than £2,000 per year.
A working example:
If an employer’s Class 1 NICs are £1,200 a month, in April the Employment Allowance used will be £1,200 and in May £800, as the maximum reduction is capped at £2,000.
Once the claim for Employment Allowance is made, HMRC will automatically carry your claim forward each tax year. Be sure to check that your circumstances haven’t changed in the coming years.
Employers ineligible for Employment Allowance
You cannot claim the Employment Allowance if you:
Employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener or care support worker.
Already claim the allowance through a connected company or charity.
Are a public authority, including local, district, town and parish councils.
Carry out functions either wholly or mainly of a public nature (unless you have charitable status), for instance:
- 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.