Simon Littlejohns, Partner and Head of Tax at Chartered Accountants Friend Partnership Limited, with offices in Birmingham and London, offers a summary of the new employment allowance.
As you may be aware, the new employment allowance is available from April 2014. In summary the rules are:
- The employment allowance can be claimed by any business or charity (including community amateur sports clubs) that pays NICs on employees’ or directors’ earnings.
- It is set against the employer’s entire Class 1 NIC liability each week or month until the maximum £2,000 annual entitlement is used up.
- It cannot be set against employees’ NIC.
- It cannot be set against Class 1A or Class 1B employer NIC.
- Employers can use their own payroll software or HMRC’s Basic PAYE Tools to claim.
- There are no regional restrictions though there are some excluded employers, and also special rules for groups of companies or charities and for employers running more than one PAYE scheme.
One category of excluded employers is those who employ someone (wholly or mainly of a public nature (unless they have charitable status); for example, NHS services, GP Services, providing services to a local council. If less than 50% of a business’s work is of a public nature it will be entitled to the allowance, as will registered charities even if their functions are wholly or mainly of a public nature.
There has been some concern about exactly what the ‘public nature’ rules mean and HMRC has published updated guidance with details of where it sees the bar falling.
When considering the proportion of the business which is of a public nature this could be based on the number of employees engaged in public nature duties, the percentage of time spent on such duties, or the turnover derived from the public nature activities.
On one specific issue, the guidance confirms that independent pharmacies conducting a business including over the counter sales as well as dispensing NHS prescriptions are entitled to the allowance.