The Government has announced a new £2,000 allowance to support businesses with ambitions to take on new staff. From the next tax year all businesses and charities will be entitled to a £2,000 Employment Allowance towards their employer NICs bill. The government calculates that every business will be able to employ one worker on a salary of £22,400 or four employees working full time on the adult National Minimum Wage without paying any employer NICs at all.
Who will be affected?
All businesses and charities are will be entitled to the allowance. The government expects up to 1.25 million employers to benefit, with over 90 per cent of the benefit going to small businesses. The allowance will be delivered to the employers through standard payroll software and HMRC's Real Time Information system. Employers will only need to confirm their eligibility through their regular payroll processes.
The Employment Allowance will be available from April 2014.
The Employment Allowance should represent an effective incentive to small employers to take on a further employee or employees. However, it is unlikely to make a difference to larger employers who will also be entitled to allowance. Safeguards will need to be put in place to prevent companies from restructuring in order to obtain more than one allowance. We expect one person service companies will be excluded from the Employment Allowance when the details are finalised. It is unlikely to be relevant to small personal service companies that pay out earnings in excess of the personal allowance as dividends.