Employment allowance was introduced in April 2014 and was designed to help employers reduce their National Insurance bill. At the time it was introduced, the contributions for many business would mean that bills could be reduced by up to £2,000 in some cases and in others, there would be no National Insurance bill at all; depending on how much the employer currently paid. Employment allowance is mainly beneficial for small businesses and charities, who already have only small National Insurance contributions.
April 2016 Changes.
It was announced in the recent budget by Chancellor George Osborne that the employment allowance will be raised to £3,000 from the current £2,000. The change will be implemented from April 2016 and the reason behind it is to help support smaller businesses, allowing them to create more jobs. With SME’s making up 99.3% of public sector businesses and employing over 15.6 million, it is safe to say that this will be a positive result for many businesses. It is a step in the right direction for those who run small businesses or are thinking of starting up a store. Ultimately, when the change takes place, a business could hire up to 4 people, without any national insurance contribution. It is thought that the new limit could mean that as many as 90,000 employers will not pay any contribution in National Insurance, which is obviously a really positive step, especially for small businesses and charities, who don’t have a massive cash flow. The increase in the employment allowance may counteract, in some ways, the increase in the National Minimum Wage, which will be increased to £7.20 per hour during the same time period. The increase could have caused problems for smaller businesses, but this may not be the case, due to the new Employment Allowance.
Employment allowance is not for all businesses, only those who make class 1 contributions. Other exceptions to the rule are in cases where you are employing someone who is helping out around the house or for personal reasons. Care or support workers would be exempt from this and would still be eligible based on class 1 contributions. You are also ineligible if you are employed in the public sector (excluding charities). The April 2016 change also means that businesses with only one employee, will not be eligible for Employment Allowance, which is an alteration from the 2014 introduction.