Employment Allowance from April 2014

At Budget 2013, the Chancellor announced that all businesses and charities would be able to get an Employment Allowance (EA) that would go towards their secondary National Insurance Contributions (NICs) liability.  This will be effective April 2014.  In the Budget Report under the heading ‘Growth’, the Government explained:

‘This will particularly help small businesses who want to hire their first employee or expand their workforce ‘

Under ‘Support for Enterprise’, the Budget Report went on to say that 90% of the benefit would be felt by small employers and 450,000 of them would not pay Secondary NICs at all.  On average, it was claimed; employers with fewer than 10 employees during the tax year would see their Secondary NICs bill reduced by 80%.  The Report stated:

‘The Employment Allowance will be introduced from April 2014, delivered through standard payroll software and HMRC’s Real Time Information system. To ensure maximum take-up, it will be simple to administer: employers will only need to confirm their eligibility through their regular payroll processes. This confirmation will ensure that up to £2,000 will be deducted from their employer NICs liability over the course of the year’s PAYE payments’

The National Insurance Bill 2013/14 introduces the necessary legislation for qualifying employers under the Social Security Contributions and Benefits Act 1992 and the Social Security and Benefits (Northern Ireland) Act 1992.  The Bill was laid before the House of Commons on 14 October 2014 and finished its process through the Public Bills Committee last week.

However, the legislation only gives the statutory basis for the EA and the devil, as always, is in the detail.  In an attempt to give some of this detail, HMRC have produced their ‘Draft Arrangements for Persons That Qualify for the Employment Allowance’.

Comment

From April 2014 (Month 01), businesses and charities will be able to confirm their eligibility for the Allowance by indicating ‘Yes’ on the Employer Payment Summary (EPS).  Once this has been done, the Secondary National Insurance Contribution (NICs) payments to HMRC’s Accounts Office can be reduced up to an including the £2,000 upper threshold.

This is simple – confirm your eligibility for the Allowance on the EPS and reduce your Secondary NICs until you have claimed the £2,000.  However, is it really this simple?

• Who is an eligible business?  Not everyone is eligible and the HMRC guidance does not address this
• On the EPS, we simply send over our eligibility indicator.  There is no indication on the EPS of any amount and there is no RTI requirement for a cash value to be included in software.  A payroll item without a monetary value – that is a new concept!
• Do eligible businesses reduce their Secondary NICs liability in one lump sum or in instalments throughout the tax year?
• What happens if an eligible business forgets to tick their eligibility?
• If there is no amount field on the EPS, how will HMRC be able to reconcile the payment that we are making against the year-to-date figures that we have advised on the FPS and EPS?

We believe that this guidance gives us more questions than answers and we truly hope that this will be the start of HMRC communication on the important initiative that is the Employment Allowance.  We fear that the lack of comprehensive guidance to payroll and software developer professionals could be its downfall, despite its admirable intention and the fact that it will help a great many small businesses.

Further Information

• Gov.UK – Employment Allowance Draft Arrangements
• Parliament.UK – NICs Bill 2013/14