HMRC have published guidance on the operation of the employment allowance. From 6 April 2014 employers can claim the employment allowance of £2,000 and reduce employer’s class 1 NI contributions.
An employer can claim the employment allowance if it is a business or charity that pays employer Class 1 NI on employees’ or Directors’ earnings. If the company belongs to a group of companies or the charity is part of a charities structure, only one company or charity can claim the allowance; it is up to the group to decide which company or charity will do so.
Businesses can only claim the £2,000 employment allowance against one PAYE scheme, even if the business runs multiple schemes. The allowance can be claimed using payroll software or HMRC Basic PAYE Tools. When making a claim, the employer must reduce its employer Class 1 NI payment by an amount of employment allowance equal to the total employer Class 1 NI due, but not more than £2,000 per year.
For example, if an employer’s Class 1 NI contributions are £1,200 each month, in April the employment allowance used will be £1,200 and in May £800, as the maximum is £2,000.
Once made, HMRC will automatically carry the claim forward each tax year. Using ‘View PAYE Liabilities and Payments’ in HMRCs Online Service will allow employers to see how much of the allowance is left.
Those who are exempt from filing, or unable to file online, can claim the employment allowance, at the beginning of the tax year, using the paper Employer Payment
An employer cannot claim the employment allowance if it:
- employs someone for personal, household or domestic work, such as a nanny, chauffeur, gardener, care support worker;
- already claims the allowance through a connected company or charity;
- is a public authority, including local, district, town and parish councils; or
- carries out functions either wholly or mainly of a public nature (except under 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; and
- collecting debt for a government department.
The following are not deemed to be functions of a public nature:
- providing security and cleaning services for a public building, such as government or local council offices; or
- supplying IT services for a government department or local council.
HMRC website 6.2.14