Employment allowance increase
The Government will increase the national insurance contributions (NIC) employment allowance from £2,000 to £3,000 a year from 6th April 2016. It will also be withdrawn from single person companies, such as a personal service company (PSC).
The NIC Employment Allowance was introduced from April 2014, with the idea of helping businesses and charities grow by cutting the cost of employment. When it was introduced there were only a few restrictions on which employers could claim the allowance. It was available to most employers, whether a business, charity or community amateur sports club. Employers can currently claim £2,000 per year on an ongoing basis. From 6 April 2016 the allowance will be increased by £1,000 to £3,000, enabling employers to claim a greater reduction on their employers’ NICs liability.
Employers who hire illegal workers and, as a result, receive civil penalties from the Home Office will have a year’s employment allowance removed. This measure will take effect from 2018.
Comment
Increasing the allowance to £3,000 will further support eligible employers with additional wage costs. Up to 90,000 employers will be taken out of paying NICs. When introduced in 2014, the employment allowance offset the NICs costs of employing four workers full time on the national minimum wage. The increase means that firms will be able to continue to employ four workers full time on the new national living wage next year, without paying any NICs.
The removal of the allowance for PSCs is unsurprising and it is in line with HMRC’s continuing crack down on employment intermediaries and tax avoidance.
Source Smith Williamson, Chartered Accountants