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Beyond the balance sheet

How to reduce your Employer's National Insurance Contribution by £2k through the Employment Allowance

Ercan Demiralay 21/3/2014 3 minute read

If you're an employer operating as a business or a charity, then you're likely to be eligible for the Employment Allowance writes Ercan Demiralay FCCA. 


This legislation could reduce your Employer’s Class 1 National Insurance Contribution (NIC) by up to £2,000 a year and almost every employer who is a business or charity (including Community Amateur Sports Clubs) that pay this on their employee’s or director’s earnings will be eligible.


Why are the government doing this?

The initiative was launched by the government in March 2013 and comes into force at the start of the new tax year. It is designed to remove what has been described as the "jobs tax" on businesses. The idea being that it will incentivise small organisations to take on their first employee or recruit more staff. So you could employ a new member of staff on £22,000 a year and not have to pay any NICs or, the equivalent would be 4 jobs with each paid the minimum wage. Previously National Insurance was charged at 13.8% of most pay, making it a significant tax on employment for businesses.

The government hope that this will help tackle youth unemployment which has become a significant issue in recent years. As the graph below courtesy of the Office for National Statistics demonstrates, employment among the 16-24 year olds declined from 2005-2012 in stark contrast to the over 65s.On the surface a reduction in employers NICs might appear to not make much sense during times of austerity and when the treasury is trying to boost tax revenues while cutting public spending in order to reduce the budget deficit.

Should this initiative work then it will improve the private sector's profitability and the tax the government will then generate through corporation tax. Furthermore it will bring more people into paid jobs and therefore hopefully employment long term. This should also improve the income tax take with these people then spending their earnings across the economy. 

Make full use of your Employment Allowance

How you can claim this tax cut

To claim all you need to do is use your 14-15 payroll software. This depends on the package you use but will probably be a box you have to tick. HM Revenue & Customs report that up to 1.25 million businesses and charities will benefit from the Employment Allowance and around 450,000 will not have to pay any Class 1 NICs at all in 2014-15.   

 

What you need to check

The key is to make sure that your payroll software is ready and capable of doing this. If this is not the case then you should seek help from a professional advisor

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The content of this post is up to date and relevant as at 21/03/2014.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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