Employment allowance – HMRC issue guidance

Fri 14 Feb 2014

In the Budget on 20 March 2013, the Chancellor announced the Government’s proposal to introduce an allowance of £2,000 a year for businesses, charities and Community Amateur Sports Clubs (CASC) to be offset against their employer NICs from April 2014.  This reduction of the employer NIC liability is being called the “Employment Allowance”.  Employers will claim the allowance via the normal payroll processes through RTI.  The legislation enacting the employment allowance will be section 1 of the National Insurance Contributions Act 2014.

HMRC have issued guidance that summarises the employment allowance legislative provisions in NIC Act 2014.  Key features are:

• The allowance is the lesser of the amount of employer NIC payable (i.e. secondary contributions) and £2,000 per annum.
• Employers that are a member of a group of companies or are connected with other employing entities are restricted to only one company, charity or CASC in the group or set of employers claiming the employment allowance.
• No allowance is due where the employee is employed for purposes connected with the employer’s personal, family or household affairs (e.g. child-minder, nanny, chauffeur, gardener).
• Public authorities are ineligible for the allowance and for this purpose NIC Act 2014 extends the meaning of a “public authority” to include any organisation “whose activities involve, wholly or mainly, the performance of functions (whether or not in the United Kingdom) which are of a public nature”.  This, for example, excludes the NHS and all organisations which mainly provide services to branches of government including a commercial organisation that provides most of its services to arms of government (an example given is a debt collector that mainly collects debts due to government departments, however providing IT services to the government is not caught – a fine distinction).
• Personal and managed service companies are ineligible.
• The allowance will be claimed and computed by the employer’s payroll software and be incorporated into the PAYE RTI submission process.
• Employers have to keep records of the employment allowance claims for at least three years.

In view of the fixed upper limit of £2,000 per annum only the smallest employers are likely to show much interest in the opportunity afforded by the employment allowance to reduce their fiscal employment costs.