In October 2013 an open letter was published by HM Treasury giving details new legislation regarding Employment Allowance. This new Government policy was announced by the Chancellor at the Budget 2013. But what is Employment Allowance and how will it affect small businesses?

What is Employment Allowance?

Employment allowance is available to every business and charity in the UK. It means that eligible businesses can reduce their Class 1 Employer NIC (National Insurance Contributions) by up to £2000 per tax year!

Who is eligible?

Most business will be eligible for Employment Allowance but there are some exceptions. Ineligible businesses are these where a business ‘functions either wholly or mainly of a public nature’, where a business is carrying out more than 50% of your work for the public sector. These are people like local authorities, the NHS and GP services. satellite maps . You are also not eligible if you are a Personal or Managed Service Company.

Is it only Limited Companies that can claim employment allowance?

No, sole traders and partnerships who have employees and pay class 1 NIC’s are still eligible, provided they do not fall into any of the ineligible categories mentioned above.

How will it affect small businesses?

Employment Allowance could wipe out your class 1 NIC’s altogether! HM Treasury estimate that one third of employers will have no employer NIC’s at all. This could give small business the opportunity to expand their workforce without incurring additional employer NI costs. An eligible business currently without any employees will be able to take on a staff member on a salary of £22400 or four adults on National Minimum Wage without paying employer NICs.

How to claim?

If you already have a payroll system in place the claims can be made through your regular RTI (Real Time Information) submissions.

Where can I find out more information?

For more information, including an Employment Allowance Calculator, by following the links below: