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The Government has introduced the Employment Allowance which is available from 6 April 2014. If your business is eligible you can reduce your Employer Class 1 NICs by up to £2,000 each tax year.

Generally the Employment Allowance can be claimed if you are a business or charity (including Community Amateur Sports Clubs) that pays Employer Class 1 NICs on your employees’ or directors’ earnings.

The relief is claimed through the payroll software and notified to HMRC through the RTI submissions.

The relief is calculated by reducing your monthly Employers NIC liability. The allowance can all be claimed in Month 1, but if your monthly Employers NIC liability is less than £2000 then the unutilised amount is carried forward and used in Month 2, and so on.

As always there are restrictions and if your company belongs to a group of companies or your charity is part of a charities group structure, only one company or charity can claim the allowance. It is up to you to decide which company or charity will claim the allowance. Rather strangely if you have a partnership and a limited company, both operating payrolls, then both businesses can claim the allowance. However you can only claim the allowance against one PAYE scheme – even if your business runs multiple schemes.

In addition some businesses are explicitly excluded from claiming – see below:

Excluded employers
You cannot claim the Employment Allowance, for example if you:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils
  • carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
    • NHS services
    • General Practitioner services
    • the managing of housing stock owned by or for a local council
    • providing a meals on wheels service for a local council
    • refuse collection for a local council
    • prison services
    • collecting debt for a government department

You do not carry out a function of a public nature, if you are:

  • providing security and cleaning services for a public building, such as government or local council offices
  • supplying IT services for a government department or local council

Personal and Managed Service Companies who pay contract fees instead of a wage or salary, may not be able to claim the Employment Allowance, as you cannot claim the allowance for any deemed payments of employment income.

The detailed official guidance contains more about excluded business types
https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.

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