From 6 April 2014 employers can offset up to £2,000 per income tax year (6 April 2014 to 5 April 2015) of employer’s national insurance.
I’m a single person contractor company, will I qualify?
In short, yes. Almost all employers will qualify, the exceptions are domestic employers i.e. that is anyone who directly employs a nanny, au pair or gardener. The other exception is a public authority.
Most single person contractor companies pay their director up to the lower earnings limit and so do not have to bother paying tax, employee’s national insurance nor employer’s national insurance. This amount is tax efficient and administratively efficient.
How will the new allowance operate?
All employers now fall within RTI reporting. If you file online using payroll software then your software will include the question, “Do you want to claim the NIC’s Employment Allowance?” All you will need to do is answer “Yes” or “No”.
The software will automatically set off up to £2,000 each month until the the total allowance has been set-off against your Employer’s national insurance. This could occur in month 1 or month 12.
The HMRC’s Basic Payroll package will also include the same question, allowing you to claim the allowance.
What if I forget to claim at the start of the tax year?
No matter, you can claim the allowance from part way through the year and new employers will have to make a claim during the tax year. In fact you can make a claim after the end of the tax year and the allowance will be set-off against the 2014-15 employer’s NIC or set against later year’s NIC.
What about IR35 payments?
If you are a contractor and one of your contracts falls within IR35 you have a choice, either:
- You can pay, through the payroll an amount sufficient to cover any IR35 deemed payment; or
- You can wait until the end of the income tax year and calculate a deemed payment. This payment is not payrolled.
If you choose option 1 you will be able to use the Employment Allowance. If you choose option 2 you cannot use the Employment Allowance.
If you are a client of Clearways Accountants we will be informing you of your salary choices and claiming the Employment Allowance for you. If you would like help with your payroll to ensure you claim the Allowance then please contact Clearways Accountants on 01737 244298.