Employment allowances for schools

The Chancellor announced the creation of a National Insurance Contributions (NICs) Employment Allowance in the 2013 Budget. From 6 April 2014 this new initiative enables eligible companies to reduce their Employer/Secondary Class 1 NICs bill by up to £2,000 a year.

Employers can claim the Employment Allowance if they are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on their employees’ or directors’ earnings. If the company belongs to a group of companies or the charity is part of a charities structure, only one company or charity can claim the allowance and it is up to the employer to decide which company or charity will claim. Only one claim of £2,000 Employment Allowance against one PAYE scheme is allowed - even if a business runs multiple schemes.
Not all businesses can claim the Employment Allowance; there are some that are excluded such as those who employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener or care support worker.
The CIPP asked HMRC to reconsider their decision on this as surely if they are employers and have to pay employer’s NI then they should be eligible and not excluded from the allowance. It seems to go against the government’s perpetual claims to be helping businesses of all size.
Public authorities cannot claim and includes local, district, town and parish councils. Also those businesses who carry out functions either wholly or mainly of a public nature (unless they have charitable status) cannot claim, i.e. NHS, GP and prison services. If someone is responsible for the payroll in a school they will need to ascertain what type of school it is. If run by public funding then the school will not be permitted to claim the allowance, but if it is an academy, which has charitable status, it can claim. If it is an independent school which is a trading business it can also claim.  

Payroll software
Employers can use their own payroll software to give notice to HMRC that they are going to claim the Employment Allowance, using a field on the Employer Payment Summary (EPS). However not all software providers supply an EPS facility and if this is the case, HMRC’s Basic PAYE Tools (BPT) can be used to make the claim. If only using the BPT to claim the Employment Allowance, but using their own software to operate the payroll, businesses will need to keep a record.
Any records that relate to a claim must be kept for a minimum period of three years after the end of the tax year in which the Employment Allowance was claimed. The records must show why the company was entitled to claim the allowance, how much allowance was used (or in some circumstances repaid) and what liabilities the allowance covered.
If a business changes their payroll software, they won’t need to make the claim for Employment Allowance again as HMRC will automatically carry the claim forward each tax year. However a new EPS may need to be submitted if the new software requires this to enable the claim.  

When making a claim the employer Class 1 NICs payment must be reduced by an amount of Employment Allowance equal to the employer Class 1 NICs due, but not more than £2,000 per year. Deductions must be made from qualifying payments as they occur in the tax year. For example, if the employer Class 1 NICs is £3,000 each month then in April the full annual allowance would be used and an employer would have to pay the excess £1,000 to HMRC and continue to  pay employer NICs liability as normal for the rest of the tax year. However if the monthly employer Class 1 NICs is £200 each month, then in each month from April to January the NICs bill would be reduced by £200 (equalling the £2,000 allowance by the tenth month) and then the remaining NICs paid as normal for the last two months of the tax year.
Guidance states that employers will be able to see how much of their Employment Allowance has been used in the ‘View PAYE Liabilities and Payments’ in HMRCs Online Service. However there have been some reconciliation issues which we hope are rectified to ensure the introduction of the Employment Allowance does not cause further confusion for those affected.
If for whatever reason a company doesn’t claim the Employment Allowance they are entitled to at the beginning of the tax year, they can claim it at any point through the year. The allowance can also be claimed for a previous tax year (from 2014/15 only) after the end of the tax year that the allowance relates to and this can be done up to four years later.

Unused allowance
If a business with more than one PAYE scheme does not use the full £2,000 allowance during the year on the nominated PAYE scheme then it can apply to HMRC at the end of the tax year for a refund of any unused balance. This can only be done if the business has employer Class 1 NICs liability on other PAYE schemes, and their PAYE payments are all up to date. If a refund is not applied for and there is an unused balance then the employer can apply to HMRC to use this against any forthcoming PAYE debt.
If a business did not use their Employment Allowance award in full (for example if it claimed the Employment Allowance late and did not have enough employer Class 1 NICs liability for the remaining part of the year), HMRC will offset the balance against other current or future PAYE liabilities, to ensure the allowance is not lost.
Where a claim is made after the end of the tax year, this will be offset against any outstanding PAYE liabilities or current/future liability, or employers can ask HMRC for a payment of any balance, again provided their PAYE payments are all up to date.
What a business cannot do is move their Employment Allowance to another PAYE scheme during the tax year. However they can stop their claim at the end of the tax year, nominate another PAYE scheme in the new tax year, before making any NICs or PAYE payments, and make a new claim against that scheme.
If a business changes ownership before the full £2,000 allowance is used, guidance states that any claim stops when a business changes ownership and the new owner will be able to make a claim in their own right. Under these circumstances an employer cannot transfer any balance of unused allowance between the businesses.
The CIPP has asked HMRC exactly how the process of refunds and reallocation will work and at the time of writing this article, we had not received clarification. We have been assured verbally that guidance will be updated in plenty of time to allow for these situations in the next tax year.

Connected companies
If a company has control of another company, or both companies are under the control of the same person or persons, for example; companies linked in a group, then these companies are connected so can only claim one Employment Allowance.
If the same person or connected persons control two or more charities and the charities share the same, or substantially similar, purpose and activities, or both charities belong to a group of charities, the charities for the purpose of the Employment Allowance are connected.
If a charity controls a trading business, they are also considered connected for the purposes of the Employment Allowance. Where this is the case, there is entitlement to only one Employment Allowance to use against one PAYE scheme regardless of how many PAYE schemes are in operation. If the business controls a charity, they are not connected and they can claim the Employment Allowance for both the company and the charity.
It is up to the employer to nominate which PAYE scheme to claim the allowance against but common sense dictates that it will be one with at least £2,000 of employer NICs liability (or the highest) to ensure the maximum amount is claimed. It would be worth checking at the start of the tax year whether the PAYE scheme elected is still the right one. Another scheme might be able to attract to the full allowance value, so it may be worth changing at this point.
A question that has been raised by CIPP members is regarding those who run a client’s payroll and the client does not agree that they are a connected company and request that you claim for each business on their behalf? They could argue for example, that a chain of shops all run independently with their own VAT and company registration, should each be eligible in their own right for the Employment Allowance. This is where very carefully worded service level agreements would be advisable to ensure that it is clear under whose instruction the allowance is claimed and that overall liability falls with the client.
Full and detailed guidance is available on Gov.uk and is being updated over the course of this year to reflect scenarios that have and undoubtedly will continue to happen during the first year of the Employment Allowance.

Further information