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Business Matters

The new Employment Allowance

From 6th April 2014, every employer with less than 250 employees will be entitled to deduct up to £2000 from its Employers National Insurance Contributions (ERNIC).

The last employer tax rebate was the ERNIC Holiday which ended on 5th September 2013 and was a complex system which entitled every employer to escape making payments of up to £5000 per employee but only for the first 10 employees and it applied only to new businesses in their first year. It was a complicated scheme and thankfully is now ended.

 

The new scheme, is simple - every UK employer large and small will qualify. Although e.g. Big Bus Co with 150 employees might qualify alongside J. Smith Ltd who has 5, the impact on J Smith Ltd will be greater and encourage employment. For Big Bus Co, the allowance will be gone in 1 week (and so impact very little on their employment policy) whereas for J Smith Ltd the advantages may last easily for 12 months and could easily mean the difference between employing or not employing more people.

The arrangements and legislation are being consulted on at the moment but indications are that you will need to do 2 basic things:

  • Formally join the scheme by ticking a box on the Employer Payment Submission
  • Make Employer Payment Summaries (EPS) monthly or however frequently you pay your payroll in addition to Full Payment Summaries (FPS) submissions.
Early days right now and many small employers - if the directors and shareholders are the only employees - may not even pay any ERNIC because they are following one of the classic tax reduction strategies . There may be some Corporation tax reduction opportunities available from April - albeit not by very much - by paying a slightly higher salary and recovering the excess ERNIC contributions. We'll be taking a closer look at this later for our clients.

 

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