Employment Allowance: increase to £3,000
Published 25 January 2016
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Who is likely to be affected
All businesses, charities, and community amateur sports clubs, minus exceptions outlined in section 2 of the National Insurance Contributions (NICs) Act 2014.
General description of the measure
The NICs Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction.
This measure will increase the Employment Allowance by £1,000 to £3,000 from April 2016. This means eligible business and charities will be able to claim a greater reduction on their employer NICs liability.
Policy objective
The measure will cut employment costs in order to support businesses and charities in helping them to grow. Increasing the allowance to £3,000 will further support eligible employers with additional wage costs. Up to 90,000 employers will be taken out of paying NICs. When introduced in 2014, the Employment Allowance offset the NICs costs of employing 4 workers full time on the National Minimum Wage. The increase means that firms will be able to continue to employ 4 workers full time on the new national living wage next year, without paying any NICs.
Background to the measure
This measure was announced in Summer Budget of 2015, for implementation from 6 April 2016.
Detailed proposal
Operative date
This measure will have effect on and after 6 April 2016.
Current law
Current law is contained within sections 1 to 8 and Schedule 1 of the NICs Act 2014. Section 5(1)(a) of the same Act gives the power to make regulations so as to increase or decrease a person’s employment allowance for a tax year.
Proposed revisions
Section 1(2)(a) of NICs Act 2014 will be amended through secondary legislation to determine the new maximum value of the Employment Allowance. Affirmative regulations will be laid before parliament in January 2016 to this effect.
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|---|
| - | -630 | -670 | -685 | -700 | -695 |
These figures are set out in table 2.1 of Summer Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Summer Budget 2015.
Economic impact
No significant macroeconomic impact.
The costing also includes a behavioural adjustment to account for an increase in take-up of the Employment Allowance.
Impact on individuals, households and families
The measure is not expected to impact on individuals, households or family formation, stability or breakdown.
Equalities impacts
There are no direct equality impacts but the groups sharing protected characteristics that will benefit indirectly from possibly improved employment prospects are mainly those represented in lower income groups, such as the young, women, ethnic minorities, older workers and disabled people.
Impact on business including civil society organisations
The impact on businesses’ ongoing administrative burdens is expected to be negligible. Businesses who were already claiming the allowance through their payroll software will automatically receive the increased allowance, as long as they are still eligible and do not turn off their claim. Approximately 90,000 businesses will be taken out of employer NICs liability altogether. There are likely to be negligible one-off costs as businesses familiarise themselves with the new rules. The same is true of civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
HMRC will incur some costs implementing this change but these are expected to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
Take-up statistics for the Employment Allowance will continue to be produced, and will inform future policy decisions.
Further advice
If you have any questions about this change, please contact Emma Barker on Telephone: 03000 586 778 or email: emma.robinson3@hmrc.gsi.gov.uk.
Declaration
David Gauke MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.