Employment Allowance: How to get up to £2,000 off your Class 1 NICs

From 6 April 2014 employers can claim the Employment Allowance and reduce their employer Class 1 NICs.

From 6 April 2014 employers can claim the Employment Allowance and reduce their employer Class 1 NICs.

How does a business claim Employment Allowance?

To make a claim your employer Class 1 NICs payment must be reduced by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example: your employer Class 1 NICs are £1,200 each month. In April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000.

HMRC then automatically carry your claim forward each new tax year and the employer must inform them of any change in circumstances.

Which employers can claim Employment Allowance?

• Businesses or charities that pay employer Class 1 NICs on employees’ or directors’ earnings.
• Despite the exceptions (below) these do include businesses that provide security and cleaning services for a public building, such as government or local council offices, or who supply IT services for a government department or local council
• If the company belongs to a group (or the charity is part of a charities structure) only one company or charity can claim the allowance.
• You can only claim the £2,000 Employment Allowance against one PAYE scheme even if your business runs multiple schemes.
• Service companies can claim the allowance if it pays earnings and has an employer Class 1 NICs liability on these earnings.

Which employers cannot claim Employment Allowance?

• Personal and Managed Service Companies who pay contract fees instead of a wage or salary may be unable to claim the Employment Allowance, as you cannot claim the allowance for any deemed payments of employment income.
• Those who employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, or care support worker.
• Anyone already claiming the allowance through a connected company or charity.
• A public authority (including local, district, town and parish councils).
• Any employer who functions either wholly or mainly of a public nature (unless holding charitable status), for example:
• NHS services
• GP 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

To claim, just contact your account manager today and we’ll get the process rolling.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.