Tim Moore-Beecroft

Employment Allowance: does my small business qualify for a tax cut?

With less than two weeks to go until the coalition government’s latest tax cut for small businesses is introduced, many employers are asking the same two questions: am I eligible and, if so, how can I claim?

Before we explore these questions, I would like to share a little background detail.

Cutting the ‘tax on jobs’

The Employment Allowance, first announced by chancellor George Osborne at Budget 2013, will enable more than 1.25 million UK businesses and charities to reduce their annual National Insurance bill by up to £2,000.

Of these, an estimated 450,000 firms will no longer need to make employer Class 1 National Insurance Contributions (NICs) at all.

The tax cut – part of the government’s drive to boost levels of job creation amongst small firms – is available from 6th April 2014.

More than 90% of the benefit will go to small businesses employing fewer than 50 members of staff, according to ministers.

To put the changes into context, a company with 10 full-time members of staff (aged 21 or over) on national minimum wage will be in line to receive a tax cut of over 40% (from £4,870 down to £2,870).

A small business will be able to employ four adults or ten 18-20 year-olds full-time on the national minimum wage, completely free from the burden of employer NICs.

Positive reaction

The reform has been applauded by pro-enterprise groups including the Federation of Small Businesses (FSB) and British Chambers of Commerce (BCC).

John Longworth, director general at the BCC, said: “The new Employment Allowance will help our smallest companies take on staff, and will give many businesses an important confidence boost.

“In particular, this measure will create a strong incentive for a new or start-up business to hire its first employee.”

Research by the FSB has revealed that 29% of its members plan to use the £2,000 ‘cash back’ to increase pay for existing employees, while 28% intend to take on additional employees.

Exclusions and how to claim the Employment Allowance

According to the legislation, employers can claim the Employment Allowance if they are a business or charity (including a community amateur sports club) that pays employer Class 1 NICs on their employees’ or directors’ earnings.

A business or charity can only claim the £2,000 allowance against one PAYE scheme – even if it runs multiple schemes.

Certain employers, such as those that employ people to carry out “personal, household or domestic work” are excluded and therefore unable to claim the allowance. Public bodies such as local councils are also ineligible. Click here for a full list of excluded employers.

If you think you are eligible, and would like to find out more, click the following link to read the official HMRC / Treasury guidance on how to claim your employment allowance.

For more information on this or any other payroll issue, get in touch with the ClearSky Payroll team today on 0800 014 9594 or email

Employment allowance: how will you spend yours?

In the run up to the scheme’s launch, small business owners took to Twitter to share how they plan to put their £2,000 to work, using the hashtag #2kcashback, with many looking to increase their headcount with the help of the lucrative scheme.

If you’re an employer looking to capitalise on the new Employment Allowance, we would love to hear how you plan to invest your National Insurance savings. Why not leave a comment in the box below or get in touch with us on Twitter?

Posted in Accountancy, Budget, News, Tax, Tax issues | Leave a comment

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