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Are you making use of your employment allowance?


Posted on 16 April 2014

What it is

  • The Employment Allowance enables eligible businesses to reduce their employer Class 1 NICs by up to £2,000 each tax year.
  • It is available for businesses or charities (including Community Amateur Sports Clubs) that pay employer Class 1 NICs on employees’ or directors’ earnings.
  • The allowance can only be used against your employer Class 1 NICs when the liability arises.
  • The maximum claim your business can make in a year is the lesser of the total employer Class 1 NICs or £2,000.

How to claim

  • The Employment Allowance can be claimed through your 2014/2015 payroll software or, in some circumstances, HMRC’s Basic PAYE tools.
  • Once a claim is made the allowance is automatically carried forward each tax year.
  • Where companies or charities are connected, only one nominated PAYE scheme with employer Class 1 liabilities can claim the allowance. Companies are connected with one another if one of the two has control of the other or both are under the control of the same persons.

When to claim

If you pay your employees monthly and your total Class 1 NICs liability is £2,000 in April. You can claim your full allowance in April.

If you pay your employees monthly and your total Class 1 NICs liability is £200 (per month), you will claim £200 per month so will have used your full allowance (£2,000) by month 10 in the tax year. You will need to pay your liability for employers Class 1 NICs for month 11 and 12 to HMRC.

Excluded activities

The Employment Allowance cannot be claimed if the Class 1 contributions are:

  • Incurred in respect of an employed earner who is employed for the employer’s personal, family or household affairs such as a nanny, au pair, chauffeur, gardener etc.
  • Incurred by employers who carry out functions wholly or mainly of a public nature (unless charitable), such as GP’s.
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