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National Insurance - £2,000 Employment Allowance

In the March 2013 Budget, the Government announced that, as an incentive to encourage business growth, it was introducing an employment allowance of £2,000 a year for all businesses, charities and community amateur sports clubs with employees whose earnings result in a secondary Class 1 National Insurance (commonly known as employer’s NIC) liability arising.

The draft Bill has now been presented to parliament and the key points of the new allowance are summarized below (but please note that the legislation may be subject to change as part of the parliamentary procedure).

The £2,000 allowance will commence from 6 April 2014 (i.e. the tax year 2014/15) and is intended to be an annual allowance. It will be used to offset the Class 1 secondary National Insurance contributions paid by employers as soon as such a liability arises in the tax year, but you will not be able to offset the allowance against primary Class 1, Class 1A or Class 1B contributions.

From a practical perspective an employer will physically claim the allowance via the business’ payroll software or HMRC’s own PAYE Tools and will thus reduce the monthly Class 1 secondary contributions payable by the employer each month until the £2,000 for that tax year is entirely utilised.

A facility is to be added to HMRC’s Real Time Information system (RTI) to enable the reporting to reflect the monthly deduction.

One annual allowance is available to each employer, regardless of the number of employees or how many PAYE schemes that employer operates, although you can choose which scheme will benefit from the allowance. Where there are two or more connected businesses/charities, only one may claim the allowance. It will not be possible to transfer any unclaimed balance to another connected scheme (although there may be a possibility of claiming a refund or offset, after the end of the tax year, against the other connected scheme). Where there are more than one scheme, any changes regarding which scheme is chosen to claim the allowance will take effect from the beginning of the next tax year. Where ownership of a company changes in the year the allowance may also be restricted.

The allowance will not be available to domestic employers (e.g. for household employment, such as a gardener) nor to public authorities (and other employers) who carry out functions of a public nature (unless a charity).

There will also be restrictions for companies within the IR35 regulations.

Please contact us if you need any assistance or further information.

Jonathan Poulter


National Insurance Employment Allowance