Businesses can claim £2,000 off their tax bill

Businesses can claim £2,000 off their tax bill

Last September the government scheme which enabled new businesses to take a National Insurance Contributions (NICs) holiday for the first ten employees they employed in their first year of trading ended. Initiated in June 2010 it was meant to offer new businesses a helping hand with the costs of employing staff. Businesses located in the southeast of the country were excluded and the scheme was not effectively publicised meaning that many business missed out on this opportunity.

A new NIC scheme commences in April 2014. This is called the Employment Allowance and it allows all eligible employers to claim £2,000 from their employers National Insurance (NI) liability. Wright Vigar wants to ensure that all businesses take the opportunity to utilise this allowance.

There are of course some restrictions. You cannot claim this allowance if you employ someone for personal or domestic work, such as a gardener, au pair or nanny. A full list of those excluded from claiming can be found at www.gov.uk/employment-allowance-up-to-2000-off-your-class-1-nics

If your company has multiple PAYE schemes, you can only claim the allowance against one.

To claim you need to indicate your intent, using your payroll software, or the Basic PAYE Tools, that you wish to use the allowance and deduct the ER’s liability by sending an Employers Payment Summary (EPS) to HM Revenue and Customs (HMRC) electronically each month until the £2,000 has been claimed. If you do not use it all in the 2014-15 tax year, the balance will be rolled into the next tax year.

This is good news for small businesses but can also be advantageous for one director companies.

Many directors pay themselves a small salary to use their tax personal allowance and ensure that they qualify for the state pension.  But with the basic personal allowance tax code being elevated to 1000L, allowing the first £10,000 earned in the tax year to be tax free, there is a small argument which says that directors may be advised to increase their salaries to take advantage of the employers allowance and use more of their personal tax allowance. Not forgetting the additional saving made through Corporation Tax, this makes good financial sense.

So what does this saving actually equate to?

HMRC have at last brought the Primary (EE) and Secondary (ER) NI contributions to the same threshold level. The NIC threshold is £7,956.00 for the tax year 2014-15. So after reaching £7,956.00 per annum or £663 per month, NICs due for both Employee at 12% and Employers at 13.8%.

Salary P/A	Tax Due	NI EE	NI ER	Net pay	Company Cost	Offset Allowance	New Cost (incl Marginal CT saving)	Marginal Corporation Tax saving*
7,956.00	–	–	–	7,956.00	7,956.00	–	7,956.00	–
8,000.00	–	5.28	6.08	7,994.72	8,006.08	6.08	7,991.20	8.80
9,000.00	–	125.28	144.08	8,874.72	9,144.08	144.08	8,791.20	208.80
10,000.00	–	245.28	282.08	9,754.72	10,282.08	282.08	9,591.20	408.80
12,000.00	400.00	485.28	558.08	11,114.72	12,558.08	558.08	11,191.20	808.80

*Corporation Tax rate at 20% (small profits rate)

Taking the £10k salary example detailed above, the individual increases their net pay by £1,798.72 (£9,754.72 – £7,956.00) which only costs the company £1,635.20 (£9,591.20 – £7,956.00), giving a saving of £163.52.

So the moral of this article is – there are tax savings to be had! If you would like advice on anything raised in this article, please contact Carolyn Cunningham, Payroll Manager, at carolyn.cunningham@wrightvigar.co.uk or Neil Roberts at neil.roberts@wrightvigar.co.uk
Or just give Carolyn or Neil a call on 0845 880 5678 – we would be delighted to help you!

Author Carolyn Cunningham

Technical content correct at time of publishing.