Tag Archives: National Insurance

Employment Allowance FAQ

The Employment Allowance gives your company the opportunity to reduce its annual National Insurance Employers’ Contributions bill by up to £3,000 a year. Its original aim was to encourage one-man bands to take on additional staff and, since launch, it has become one of the most claimed-for reliefs by British businesses.

It doesn’t apply to every company though so in this article, we will provide you with a rundown of the Employment Allowance and how it affects you.

Who can claim Employment Allowance?

From the start of the 2016/2017 tax year, Employment Allowance was withdrawn from one-person-only companies – companies where the director is the sole employee.

If you do have a member of staff, you will have to pay them a minimum of £157 a week (£680 a month/£8,164 a year) to qualify for Employment Allowance.

Employment Allowance can not be used for employing someone to work in your household – a nanny or a gardener for example.

Likewise, if you’re a service company and you’re on IR35 and your only income is the earnings of your intermediary (for example, a personal services company, limited company, or partnership), you can’t claim Employment Allowance.

If your company does more than half of its work for the public sector (schools, councils, NHS), you also may not enrol on the scheme.

What can my business claim with Employment Allowance?

Your £3,000 Employment Allowance is offset gradually against your secondary Class 1 National Insurance bill.

You start with £3,000 and every time you make a payment in secondary Class 1 National Insurance contributions (i.e when you are paying your staff), the amount you have left in your Employment Allowance account decreases.

That means that you only start paying secondary Class 1 National Insurance contributions once you’ve passed the £3,000 threshold. If your business paid £15,000 worth of secondary Class 1 National Insurance contributions in a year, the Employment Allowance would reduce the amount you actually pay to £12,000.

This is how your Employment Allowance is used

Let’s take an example of a company with annual secondary Class 1 National Insurance contributions of £4,200, paid at £350 per month…

Month Employers NIC that month Available Employment Allowance Allowance used in that month What you’d pay HMRC on the 22nd Your allowance carried forward
1 £350 £3,000 £350 Nil £2,650
2 £350 £2,650 £350 Nil £2,300
3 £350 £2,300 £350 Nil £1,950
4 £350 £1,950 £350 Nil £1,600
5 £350 £1,600 £350 Nil £1,250
6 £350 £1,250 £350 Nil £900
7 £350 £900 £350 Nil £550
8 £350 £550 £350 Nil £200
9 £350 £200 £200 £150 Nil
10 £350 Nil Nil £350 Nil
11 £350 Nil Nil £350 Nil
12 £350 Nil Nil £350 Nil

As each £350 payment is made, the amount left in the Employment Allowance account diminishes by the same amount. In month 9, when the £350 payment is made, the final £200 of the Allowance is used up meaning that you have to pay the balance of £150 (£350 minus £200) to HMRC by the 22nd of the month following.

How do I claim for Employment Allowance?

You claim for Employment Allowance through your payroll software. You only need to make the claim once and, each year, the Allowance will be reapplied to your HMRC PAYE account until you tell HMRC to stop.

Payroll is very complicated and for all clients, we recommend that you contact your Kelsall Steele accountant to run your payroll and take care of all payroll-related issues for you.

Employment Allowance – can I claim on previous years?

No, unfortunately not. This is a “use it or lose it” relief.

Contact Kelsall Steele about the Employment Allowance

For all Employment Allowance and payroll-related issues, please call us at any time on 01872 271655 or email enquiries@kelsallsteele.co.uk.

Self-employment Business start-ups – FAQ

Self Employment FAQ

Starting-up in business, becoming self-employed, can be a bit of a daunting process, especially if you are not sure of some of the steps you need to go through. There are a few ‘hoops’ you need to jump through so we have put together a few basic pointers for those who are thinking of making that move in self-employment.

We can help you at every step of the way, so please feel free to contact us if there is anything you would like further information on or help with.

  1. Do I need to tell HMRC?
    • You will need to register as self-employed with HMRC and the easiest way to do this is online at gov.uk. Tell them as soon as possible after your self-employment begins.
  2. What will they ask me?
    • Your National Insurance number, address, date of birth and details of the business including nature of the business, date it began trading and your business address. If you have previously registered as self-employed you would have had a 10 digit unique taxpayer reference number. They will ask for this if you have it.
  3. Do I need to register for VAT?
    • You only need to register for VAT when your sales exceed £83,000 in a rolling 12 month period. However, you may wish to voluntarily register to enable you to claim back the input VAT on your expenses. This does mean you have to charge output VAT on your sales so it’s only advisable to voluntarily register if this will not affect your competitiveness e.g. if your customers are VAT registered and can reclaim the VAT you charge them.

Don’t forget that if you become VAT Registered you will need to file VAT Returns online with H M Revenue & Customs. You will need to create a Government Gateway account and register to file VAT Returns online. Make sure you allow enough time for this process before your first VAT Return becomes due!

  1. Do I pay myself a salary?
    • No, the money you draw from your business is not classed as a salary and is not a business expense. You do not pay tax on the money you draw from the business, only on the business profits. You can of course employ other people and pay them a salary which is a business expense.
  2. When do I pay tax?
    • Your first tax return will run from the day you start self-employment up to the following 5 April. Any tax will be due on the 31 January following that e.g. if you start self-employment on 1 June 2016, your first tax return will run to 5 April 2017 and if you have made a taxable profit, you will pay tax on 31 January 2018.
  3. Do I need to register for national insurance?
    • When you register as self-employed you will automatically be registered to pay national insurance. If your income is high enough, you will pay national insurance at the same time as any income tax.
  4. What records should I keep?
    • You need to keep records of your business income and expenditure. This will include bank statements, sales invoices and purchase invoices, details of the entries on your VAT Return and payroll records if you employ people. Keep records for at least 5 years from the 31 January following the tax year e.g. you must keep your records for the year ended 5 April 2016 at least until 31 January 2022.
  5. What happens once I’ve registered as self-employed?
    • HMRC will issue you with a unique taxpayer reference number and send you a notice to complete a tax return. You will need to enter on this tax return all your business income and expenditure to calculate your taxable profit and any tax that may be due. The tax return needs to be filed by the 31 January following the tax year end date (e.g. tax returns for the year ended 5 April 2016 are due to be filed by 31 January 2017).
  6. Aren’t things changing soon?
    • Yes! Over the next few years the Government’s plans to ‘make tax digital’ (MTD) will be rolled out and, depending on the size of your business, you may have simpler rules to follow for reporting your income and expenditure. You will also have to report more regularly, probably 4 times a year. More details will follow as they come through!

Employment Allowance 2016/17

Employment Allowance is £3,000 for 2016/17

Did you know that from this tax year you can now get up to £3,000 off your National Insurance bill if you’re an employer? This has increased from the £2,000 allowance which could be claimed in both 2014/15 and 2015/16.

Not sure if you are eligible?

You can claim Employment Allowance if you’re a business or charity paying employers’ Class 1 National Insurance. You can also claim if you employ a care or support worker. However, you can only claim Employment Allowance for one PAYE scheme so if you’re part of a group, only one company or charity in the group can claim the allowance.

Directors, take note!

If you are the only employee in your company who has employer National Insurance deducted then the rules have changed this year and you are no longer eligible to claim the allowance. If you have claimed the allowance previously you need to make sure that you update your payroll records you reflect the fact that the business is no longer eligible and notify HMRC accordingly.

If you’ve never claimed Employment Allowance and think that you should have been then don’t panic, you can claim for a previous tax year dating back to 2014/15. For details on how to do his, or for any other information, you can visit the the https://www.gov.uk/claim-employment-allowance or get in touch with Lisa on 01872 271655 or by email at lisa.middleton@kelsallsteele.co.uk,who will be happy to help.

Class 2 NI – Making it Easier to Pay

National Insurance for the Self-Employed – making it easier to pay

At the moment, if you are self-employed, you will pay income tax and Class 4 National Insurance (NI) on your profits. These amounts are calculated when you prepare your Self-Assessment Tax Return and are payable on 31 January following the end of the tax year. If your tax liability is over £1,000, then you will make payments on account for the income tax and Class 4 NI for the following tax year in 2 instalments, one on 31 January and the second on 31 July.

You will also pay Class 2 NI contributions, which are currently a flat rate of £2.75 per week. Most people will pay these by Direct Debit or cheque, separately to the payment of the other taxes.

The amount of state pension and other benefits that you can claim is based on the National Insurance contributions you have paid. For those who will reach state pension age after 6 April 2016, 35 qualifying years of National Insurance contributions are needed to enable receipt of the full basic state pension.

From 6 April 2015 HM Revenue & Customs (HMRC) want to simplify the system by collecting Class 2 NI contributions at the same time as collecting the income tax and Class 4 NI contributions due. When calculating your tax liability based on your Self-Assessment Tax Return, your Class 2 NI contributions will be added on as well.

This comes with the added bonus that if the profits reported on your Self-Assessment Tax Return are below the Class 2 NI threshold (currently £5,885 per annum), then you will not have to apply separately for a Class 2 NI exemption, but will automatically be given the option not to make Class 2 NI contributions for that year. Anyone who currently has a Small Earnings Exception certificate in place will be notified that their certificate will cease to be valid from 2015/16 onwards.

Please note that currently Class 2 NI is collected four months in arrears, so if you have a quarterly Direct Debit in place your final payment for 2014/15 will be taken in July 2015. This Direct Debit should then cease.

If you have any concerns about your NI contributions, please do not hesitate to contact us on 01872 271655 or email lydia.williams@kelsallsteele.co.uk

Class 2 NI (National Insurance)

NI Contributions

When you first inform H M Revenue & Customs that you are self-employed, you will automatically be registered to pay Class 2 National Insurance (NI) contributions. These are £2.75 per week for everyone over the age of 16 and under pension age, and are normally payable by Direct Debit either monthly or 6 monthly.

Small Earnings Exception

However, if your self-employed earnings (i.e. income less expenses) are less than £5,885 for the year, you can apply for a Certificate of Small Earnings Exception using form CF10 from H M Revenue & Customs. Once you have this certificate you will no longer pay Class 2 NI contributions. You can however continue to make payments even if your earnings are low. If you are not making any other NI contributions, you may want to keep paying your Class 2 NI to ensure you are still entitled to a full basic state pension when you retire. Employees earning over £153 per week will be paying Class 1 NI so if you are self-employed and also employed, you may not need to pay Class 2 NI to keep your entitlement to basic state pension.

State Pension Entitlement

The amount of state pension that you can claim when you reach retirement age is based on the National Insurance contributions you have paid. For those who will reach state pension age after 6 April 2016, 35 qualifying years of National Insurance contributions are needed to enable receipt of the full basic state pension.

Class 2 NI Credits

If you are unable to work for complete weeks at a time, or if you receive certain carer benefits, you may be able to apply for Class 2 NI credits. These credits allow you to keep the benefits that Class 2 NI provides without you actually making any payments.

NI Payments & Pension Forecast

To find out how many qualifying years of NI payments you currently have, you can apply online for your NI account from H M Revenue & Customs.

You can also apply for a state pension forecast. This forecast will be able to tell you if you need to make any additional NI contributions to ensure you are entitled to your full basic state pension.

If you would like any help in checking your NI record, or would like any further information about making NI contributions, please contact Lydia Williams on Lydia.williams@kelsallsteele.co.uk or on 01872 271655

Employment Allowance

What is Employment Allowance?

You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings.

Can any employer claim?

No. You cannot claim the Employment Allowance, for example if you:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • are a public authority, this includes; local, district, town and parish councils
  • carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
    • NHS services
    • General Practitioner services
    • the managing of housing stock owned by or for a local council
    • providing a meals on wheels service for a local council
    • refuse collection for a local council
    • prison services
    • collecting debt for a government department

How much is this allowance worth?

The Employment Allowance is available from 6 April 2014. If you are eligible you can reduce your employer Class 1 NICs by up to £2,000 each tax year.

How does it work?

You can use your own 2014 to 2015 payroll software, or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools for 2014 to 2015 to claim the Employment Allowance.

When you make your claim, you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000. (You will have to pay your Class 1 NICs in full for the remainder of the year.)

If you would like further information on the Employment Allowance, need help claiming or are unsure if you qualify, please don’t hesitate to give us a call on 01872 271655, alternatively you can contact Neil Brittain on neil.brittain@kelsallsteele.co.uk.