Tag Archives: NIC

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From the start of the 2016/2017 tax year, Employment Allowance was withdrawn from one-person-only companies – companies where the director is the sole employee.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

Autumn Statement 2014

The Chancellor delivered his Autumn Statement on 3 December 2014. Here is our guide to some of the key points announced in the Autumn Statement 2014.

Personal Allowance and Tax Bands

The personal allowance for 2015/16 was originally scheduled to increase to £10,500 but it was  announced that this will now be £10,600, so the tax free amount will now be £883 per month. If re-elected the Chancellor stated that this would be increased to £12,500 by 2020. The point at which higher rate tax (40%) becomes payable will be £42,385 for 2015/16, meaning that the basic rate band will be £31,785. The Chancellor “promised” that this threshold would increase to £50,000 by 2020. The 45% rate will continue to apply to taxable income over £150,000. Remember that the personal allowance is reduced where the taxpayer’s adjusted net income exceeds £100,000. The reduction is £1 of allowance for every £2 of excess income, resulting in a marginal tax rate of 60%. For 2015/16 this restriction is even wider than before with the increase in personal allowance to £10,600:

Taxable income Marginal rate
£100,000 to £121,200 60%
£121,201 to £149,999 40%
£150,000 + 45%

Transfer of Personal Allowance

As previously announced, 2015/16 sees the introduction of a transferable personal allowance for married couples and civil partners. As the amount that may be transferred is 10% of the basic personal allowance, this will now be £1,060. The recipient must not be liable to tax above the basic rate and is eligible to a tax reduction of 20% of the transferred amount, in other words £212.

ISA Limit Changes in 2015/16

The annual limit for savings in an ISA increases by £240 to £15,240 for 2015/16, but remember that the 50% restriction on cash was removed with effect from 1 July 2014.  For Junior ISAs the limit will increase by £80 to £4,080, the same as the Child Trust Fund subscription limit. There was an important announcement about the treatment of ISA savings on death in the Autumn Statement. It is proposed that the ISA savings will not lose their tax free status on death but, if transferred to the spouse, can be added to their tax free ISA savings.

Corporation Tax Rates


Profits     31/3/15(FY2014) 31/3/16(FY2015)
First £300,000 20% 20%
Between £300,000 and £1.5m  21.25%  20%
Over £1.5m 21% 20%

As previously announced there will be a single 20% rate of corporation tax regardless of the level of the company’s profits from 1 April 2015 onwards. Although a 20% rate will generally apply to corporate profits from 1 April 2015, a new “diverted profits tax” charge at 25% will apply to profits that are artificially shifted from the UK to an entity in a low tax country. This is part of a number of measures to counter tax avoidance by multi-national companies. It will be interesting to see if the new measures will bring in additional tax revenue from such companies.

Annual CGT Exemption

This is set to be £11,100 in 2015/16, so is worth a useful £3,108 for higher rate taxpayers for whom the 28% rate applies.

CGT on Non-Residents Disposal of UK Residential Property

Following consultation during Summer 2014, the Government is proceeding with the introduction of a capital gains tax charge from 6 April 2015 on non-residents disposing of UK residential properties. Such individuals will not be able to treat the property as their Principal Private Residence, and thus are potentially exempt, unless there are substantial periods of residence in the property. The proposal is that the individual must spend 90 nights there each year to qualify for the relief, however we await further details.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) has often been referred to as a “slab” tax as there are significant increases in the tax payable at the £250,000 and £500,000 price points causing a cliff edge effect and  distortions in the property market. This was particularly relevant around £250,000 as at that purchase price the rate went up from 1% to 3%, which meant £2,500 if the purchase price was £250,000 but an extra £1 meant a further £5,000 SDLT was payable. Where residential property is purchased from 4 December 2014 onwards, the rates will be as follows.

Purchase price SDLT rate  Cumulative
Up to £125,000 NIL NIL
£125,001 – £250,000 2% £2,500
£250,001 – £925,000 5% £36,250
£925,001 – £1,500,000 10% £93,750
£1,500,001 and over 12%

The Government considers that this will create a much fairer system and those buying residential property up to £937,500 will pay less SDLT, about 98% of all purchasers. For example, where the purchase price is £275,000 (the average price of a family home) the SDLT reduces from £8,250 to £3,750.  This is 2% on £125,000 to £250,000 = £2,500 plus 5% on £250,000 to £275,000 = £1,250. The new rules apply to transactions on or after 4 December 2014 but if you’ve already exchanged on a property you’ll have a choice about whether to use the old or new rules.

National Insurance Rates

There will be no increase in the rates of national insurance contributions (NICs) for employers, employees nor the Class 4 rate for the self-employed  for 2015/16, although the thresholds will be increased. Employee contributions will be payable at 12% on earnings between £155 per week and £815 per week and 13.8% employers contributions will start at £156 per week instead of £153 for 2014/15. The £2,000 employment allowance will continue to be deductible from employers’ NIC for 2015/16. The Class 2 NIC weekly contribution for the self-employed increases to £2.80 from 2015/16. As previously announced, from April 2015 employers NIC for those under the age of 21 will be abolished. This exemption will not apply to those earning more than the Upper Earnings Limit (UEL), Employers NIC will be charged as normal beyond this limit. In addition, to encourage apprenticeships there will be no employers NIC payable in respect of wages paid to apprentices under the age of 25 from 6 April 2015.

R&D Tax Credits

In order to further encourage innovation in the UK, the Government has announced an increase in R&D tax relief for the SME sector from 225% to 230% from 1 April 2015. In addition, the credit for larger non-SMEs will be increased from 10% to 11%. An advance assurance scheme for small businesses making their first claim to R&D tax credits will be introduced along with new guidance.

No Tax Relief on Write Off of Goodwill on Incorporation

One of the anti-avoidance measures announced in the Chancellor’s Autumn Statement was a proposal to block the corporation tax deduction for goodwill and other intangibles transferred to a limited company on incorporation. This was potentially available where intangibles were created or acquired by the individual or a partnership after 1 April 2002 and then transferred to a company that they controlled. Furthermore, it will no longer be possible to claim CGT entrepreneurs’ relief against the gains arising on the sale of such assets to the company. Both of these measures will be included in the 2015 Finance Bill and, if enacted, will apply to transactions on or after 3 December 2014.

Relief from Business Rates

Many small businesses will welcome the news that the doubling of Small Business Rate Relief will be extended to April 2016. This means that around 385,000 of the smallest businesses will continue to receive 100% relief from business rates until April 2016, with around a further 190,000 benefiting from tapering relief. High street retailers will be grateful for the increase in the business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below, from £1,000 to £1,500 in 2015/16, benefiting an estimated 300,000 properties and helping such small business compete with internet retailers.

Car Fuel Benefit Charge

Employees and directors with company cars and who also have some or all of their private fuel paid for by their employers are subject to the fuel benefit charge – on an all or nothing basis. The benefit charge is determined by multiplying a notional list price by the appropriate percentage for the car, based on its CO2 emissions. The car fuel notional list price will increase from £21,700 to £22,100 with effect from 6 April 2015, notwithstanding the actual fall in fuel prices in the current tax year, so this is another attempt to stop employers providing any private use fuel. For a company car emitting between 121g to 125g CO2 per km the scale charge would be 20% of £22,100 and this would result in taxable fuel benefit of £4,420 and £1,768 income tax for a 40% taxpayer. At 11p per mile the employee would need to drive 16,073 private miles to make having private fuel paid for worthwhile.

Private Use of Company Vans

Where employees are provided with a company van the taxable benefit increases from £3,090 to £3,150 for 2015/16 and there will be an additional taxable benefit of £594 where private fuel is provided by their employer. Note that this charge does not apply to all company van drivers, only those who use the van for private journeys.

Reduction in Company Car Fuel Rates

Not part of the Autumn Statement, but you need to know that some of the rates are reduced from 1 December 2014  (previous rates in brackets where there was a change):

Engine size Petrol Diesel LPG
1,400 cc or less 13p (14p) 9p
1,600 cc or less 11p
1,401cc to 2,000cc 16p 11p
1,601cc to 2,000cc 13p
over 2,000cc 23p (24p) 16p (17p) 16p

The Gov.uk website contains full details of the Autumn Statement 2014 and it’s key announcements. Alternatively feel free to contact Neil Brittain on 01872 271655 or email at neil.britain@kelsallsteele.co.uk should you require any further information or clarification on any of the points detailed in this article.