To keep the process as simple as possible for employers, the employment allowance will be delivered through standard payroll software and HMRC’s Real Time Information (RTI) system. HMRC will add a facility to the RTI Employer Payment Summary (EPS) referring to the employment allowance in the form of a ‘yes/no’ indicator and payroll software providers will do the same. HMRC will amend its basic PAYE tools to have an EPS facility to help those employers who do not have such a facility on their software.
To claim the allowance, the employer will have to signify their intention to claim by completing the yes/no indicator just once. The employer will then offset the allowance against each monthly Employer’s National Insurance payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends. It cannot be carried forward, indeed it is likely that the allowance will be restricted to the 2014/2015 tax year as it will most likely be replaced in April 2015 by the exemption from employer’s NICs for employees under 21 years of age as announced in the Autumn Statement 2013.
The employment allowance does offer a choice to directors of owner managed businesses to increase their pay from the NICs threshold to the tax personal allowance at a reduced NIC cost. However, the overall saving on taking a salary/dividend package totalling £50,000 with the salary increased to the personal allowance of £10,000 is only £113 compared to restricting the salary below the level at which NICs are payable.