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The changes to Employment Allowance

The National Insurance Contributions (NIC) Employment Allowance was introduced from 6 April 2014. It is an annual allowance which is available to many employers and can be offset against their employer’s NIC liability.

From April 2016, the government will increase the NIC Employment Allowance from £2,000 to £3,000 a year.

To ensure that the NIC Employment Allowance is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.

A welcome support for businesses

As well as the changes to Employment Allowance on 6 April 2016, the new National Living Wage – the new minimum wage for those aged 25 and over – also comes into force. The new rates will have a big impact on wage bills, particularly for smaller businesses in the care, retail and hospitality sectors. Please click on the link to see our in-depth article on the impact of the National Living Wage.

Announcing the changes to Employment Allowance in the recent 2015 Autumn Statement, Osborne said he recognised that the 50% increase in the Employment Allowance was intended to help address this issue of increasing wage bills.

HM Treasury calculations estimate that up to 90,000 employers will see their employer NICs liability reduced to zero following the changes on 6 April 2016. The changes will help support those businesses in absorbing their additional wage costs.

The increase will mean that businesses and charities will be able to employ four workers full time on the new National Living Wage without paying any NIC.

More from our payroll experts

You can find all of our latest payroll articles here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, you can request a free initial payroll quote online here.

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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