April 14th, 2014 / Insight posted in The Sunday Times Business Doctor

Save £2,000 on NI

TH writes:I employ five people. When I submit my online payroll for April, do I need to do anything to register for the employment allowance, which is being introduced this month?

The employment allowance, which is a saving on employers’ national insurance contributions (Nics), was one of the main announcements in last year’s budget and was brought in to encourage employment, writes Chris Lane, partner at Kingston Smith LLP. It was fully activated with the new tax year and will reduce your employer’s Nics bill by £2,000.

You can claim the employment allowance if you run a business or charity. If your business belongs to a group of companies, only one in the group can make the claim.

The annual £2,000 allowance will be offset against the employer’s Class 1 Nics from April 6. It will be claimed as part of the normal payroll process through the online Real Time Information system. The HM Revenue & Customs system will allow you to make the claim. If you use third party software to process your payroll payments, you may need an additional module. Alternatively, you can simply use the HMRC system to claim the allowance.

It will be a deduction from the employer’s contributions only and not those of employees. It is, in effect, a £2,000 nil-rate band for employers. Firms without any employees in the tax year ended April 5, 2015 will not be able to benefit from the allowance.