James Bailey highlights two important developments of potential benefit to employers.
The announcements in the Chancellor’s Autumn Statement last December included two significant reductions in employers’ NIC liabilities. One reduction is already with us, and the other reduction is due to begin next year.
The £2,000 holiday
If your business has any employees, you should have already felt the benefit of the £2,000 ‘holiday’ from employers’ NIC contributions, as it should have reduced the NIC you paid on your payroll for April 2014.
Almost all employers in the UK are eligible for the £2,000 reduction – the exceptions are those employing their own domestic staff and certain governmental or quasi-governmental entities.
The allowance is commendably simple to claim – you simply deduct £2,000 from your employers’ NIC contributions – in the April 2014 payroll if you are a larger employer with monthly employers’ NIC costs of £2,000 or over, or over several payrolls for a smaller employer. If your monthly employers’ NIC bill is £1,100, for example, you pay no employer’s NIC on your April payroll, and you can deduct the remaining £900 of relief due from the May payroll, so you only pay £200 for May. Your payroll software should have asked you if you wanted to claim the allowance when you ran your first payroll for 2014/15, and it should be automatic from then on.
It is important to realise that this relief only applies to employers’ NIC. It does not affect the employer’s duty to deduct employees’ NIC contributions from their pay and to forward this to HMRC, and it does not affect the requirement to act as the government’s debt collector for student loan repayments. It also does not apply to Class 1A NIC – the employers’ NIC on benefits in kind and company cars.
There are some restrictions:
- if the employer is part of a group of companies, then only one company in the group can claim the £2,000 reduction;
- if a company is ‘connected’ with another company (for example if the shares in both companies are owned so that they are controlled by the same individuals), then again, only one of the ‘connected’ companies can claim the allowance;
- it is quite common for a charity to own a company that carries out a trade, for tax reasons not relevant to this article. In such a case, the charity must choose whether it, or its trading company, will claim; and
- some businesses operate more than one PAYE scheme. If this is the case, the allowance can only be claimed by one scheme.
The allowance is set to continue in future tax years, and in 2015/16 it will be joined by another relief.
Employees under 21 – Reduction in employers’ NIC
From April 2015, employers will not have to pay employers’ NIC on the earnings of employees aged under 21, up to the ‘upper earnings limit’, which is currently £41,865 per year and is set to rise to £42,285 for 2015/16 when the new relief begins.
For a highly paid employee under 21, earning close to the £42,285 threshold, this represents a saving of over £4,700.
This reduction for the under 21s is also apparently set to continue indefinitely, with the cost projections running forward for five years in the official announcement.
Practical Tips:
As the £2,000 allowance is likely to continue for some years, it is worth making sure you are getting the full benefit (which you will not, for example, if you have more than one payroll and none of them produces £2,000 in employer’s NIC in the year).
As for the under 21 reduction in employers’ NIC for next year, a plumber friend of mine has a sticker on his van: “Employ a teenager – while they still know everything”. Perhaps it should now read “Employ a teenager – while they are cheap”.
