One of the goods things to come out of recent budgets is the new holiday for Employer National Insurance Contributions (“NIC”). The Employment Allowance allows small and medium enterprises (“SME”) to deduct up to £2,000 from their employer NIC payments.
The holiday is worth up to £2,000 per annum. This starts on April 6th 2014, and must be claimed by qualifying employers. HMRC are expecting employers to take the deduction as early as possible, so many will see the benefit on 19 May 2014 (when the first payment is NOT made.
You can only claim it once, even if you run more than one PAYE scheme. If you are part of a group, only one company can claim the allowance.
Who cannot claim?
The main exclusions are companies and organisations that provide “public sector” services. These include:
- 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
but also includes those;
- who employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
- already claim the allowance through a connected company or charity
- are a public authority, this includes; local, district, town and parish councils
How do we claim it?
The claim is made using your own payroll software, or by using HMRC’s own Basic PAYE Tools. You can check how much of the allowance you have claimed by logging on to HMRC’s online service and “Viewing PAYE Liabilities and Payments’.
Arrangements have been made for those employers who are exempt from online filing, and more detailed guidance is available on HMRC’s website.
If you have more than one payroll, you can only claim against one of them. At the end of the tax year, if you have not claimed the whole £2,000, you can apply to HMRC to have the balance refunded on the second PAYE scheme.
If you do not apply for a refund, and have an unused balance (i.e. you have paid Employer NIC that you haven’t covered with the EA), you can set the balance off against future PAYE liabilities. Please note, you cannot generate an unused balance in any other way. Neither can employer NIC in excess of £2,000 per annum cannot be used to generate an unused balance.
You can claim EA up to four years after the tax year has closed, but HMRC will set off the refund arising against future or existing PAYE liabilities, unless you specifically ask for a refund.
So what will you do with the extra cash?
A maximum saving of £166.66 per month is not life-changing, but it can be put to good use.
You could give a pay rise to a lower paid worker. Passing on part of that could mean a significant increase (in percentage terms) for that employee. It can also help to head off any discontent. Pre-empting the rise in the National Minimum Wage (“NMW”) can present you as a caring employer, rather than one who has to be forced into giving pay rises.
However, you should consider taking the opportunity to remind them of the difficulties faced by small businesses, and their critical part in making you’re a success.
Alternatively, you could just bank the savings. Cash is king, and particularly when the banks are still not providing enough finance to the SME sector. £2,000 a year may not sound like much, but it can help as a source of free funding.
Perhaps a better alternative would be to use it to invest in updated equipment. If your credit rating is good enough, there are sources of cheap funding around. Replacing older computers, perhaps on a lease or HP contract, will increase productivity, and boost morale. It will also address the need to move on from Windows XP machines, following Microsoft’s withdrawal of support for that operating system.
Words of warning
It is unlikely, but you could lose eligibility part way through a tax year. If that happens, you have to make the appropriate change to your payroll software, and repay the Employment Allowance previously given!
If you use an outside payroll agency, you will need to advise them if you qualify, and of you cease to qualify. Some payroll agencies do not know enough about your business to determine whether you qualify.
If you change payroll software, you may need to file another EPS, to activate the Employment Allowance within the software, although HMRC will roll forward the entitlement each year.
Some employers run a separate payroll for paying senior staff, to maintain confidentiality. If you have more than one payroll, perhaps run by different providers, YOU will have to decide which one gets the EA, and advise all providers accordingly.
You can only deduct the EA from the Employer NIC, not the employee NIC and/or PAYE deducted. Make sure your payroll staff or provider know this, as there are now penalties for late payment of PAYE/NIC.
You will need to maintain records proving entitlement and the amounts claimed, for three years after the end of the tax year to which they relate. You cannot rely on HMRC to record the amounts claimed, and proof of entitlement.
What should we do next?
So there are a few thoughts for consideration. If we can help in your decision-making, please let us know.