From 6 April 2014 employers are able to claim an NIC allowance of up to £2,000 to set against their employer’s NIC bill. The allowance is given as a reduction in the employer’s NIC paid to HMRC, rather than by way of a cashback.
The allowance is available to most employers, including one-man companies, although there are a small number of organisations that are not eligible, including employers of persons employed for personal, household or domestic work and those carrying out services of a public nature, such as GPs.
The allowance is claimed through the RTI process by means of the employer payment summary.
For the impact of the allowance on profit extraction strategy, see Tip 24.
XYZ Ltd has a monthly employer’s NIC liability of £600. For 2014/15 the company is eligible to claim the NIC employment allowance of £2,000.
As a result, the employer’s NIC liability is reduced to nil for months 1, 2 and 3 and to £400 for month 4. From month 5 onwards, the full employer’s NIC liability must be paid over to HMRC. The allowance is claimed each month until it is fully utilised via the employment payment summary.
By claiming the allowance, XTZ Ltd reduces its annual employer’s NIC bill by £2,000.