Welcome to 2014-15!
Good News – Employment Allowance
As an employer you are likely to have just received a letter from the Prime Minister about the Employment Allowance. If this hasn’t arrived yet it will be with you in the next few days, be patient.
David’s letter talks about the £2,000 allowance available to employers from 6th April to offset against Employer’s National Insurance. In theory this is great news that it will be cheaper to employ staff, and should promote growth in the economy. I’ll come back to one small point about eligibility later.
Now the bad news – what hasn’t he mentioned in his letter?
From 6th April you will no longer be able to offset any Statutory Sick Pay against your PAYE/National Insurance bill – so if anyone on the payroll is sick within your business for 4 working days or more then you must pay them as a minimum SSP at £87.55 per week. You will not be able to claim any of this back, the cost is all yours. This change only affects small businesses, whereas the £2,000 allowance is provided to most Companies.
If you currently employ staff then you will have to pay someone off sick who isn’t working, and potentially pay for a replacement to cover their work. If you are thinking of employing staff then you need to ensure your recruitment procedures cover the health of that person (I’m not an HR person so ensure your procedures are legal). For many small businesses who employ staff this could be extremely damaging if someone is off on long-term sick leave.
According to the Department of Work and Pensions “Any financial loss to business from the ending of the PTS will more than likely be offset by a reduction in lost working days, earlier return to work and increased economic output”. PTS is the percentage threshold scheme for calculating recovery of SSP. So small business will take the brunt of this for the good of all……..
What is the optimum salary for Directors (applies to Limited Companies only) from April 2014?
Due to the changes in Personal Allowance and the Employment Allowance there are two main salary levels dependent on the business situation (Scenario 1 and 3). If you have a different scenario then we are happy to discuss this with you and ensure you are paying the correct amount. Here are some scenarios, and you need to consider your forecast position for this year. Please contact us if you want to discuss this before we run your April payroll.
- No staff other than Directors/Shareholders, and eligible for Employment Allowance. The optimum director salary is £10,000 per annum. Any Employer’s NI will be recovered through the Employment Allowance, so at this salary it is more tax efficient than option 3.
- Staff in the business but likely to be below the £2,000 Employment Allowance. At £10,000 the Employer’s NI saving is £282.12 per person. So if you can save this over and above what you are paying your staff then use Option 1, if it is going to be marginal then pay yourselves using Option 3. If you’re completely confused like me ring 01684 577394 to work it through!
- Employed Staff and Employers’ NI is over £2,000 excluding Directors. The optimum director salary is £7,956 per annum. This is the threshold where Employers’ National Insurance starts to be paid at 13.8% and it’s better to take dividends.
The other thing David didn’t mention in his letter – who can’t claim the £2,000 Employment Allowance?
I didn’t get my letter today, but Rob did for his business Leviathan Consulting. (Un)fortunately he has me doing his accounts so he can’t get anything through without me seeing it. The letter very kindly states he could be eligible for the £2,000 – so the likelihood is he would claim it by “ticking the box”, and not check the link in the letter (it isn’t quite as easy as ticking a box, but supposedly RTI was going to be simple as well). 100% of Rob’s work is currently for the Public Sector, even though he is a Private Sector Company – so under the exclusions he isn’t eligible. How many companies will claim without realising they shouldn’t?
Here are the main exclusions:
- Connected Companies – if two or more Companies are under shared ownership then only one Company can claim the allowance. It can’t be split, so choose the Company that will benefit most.
- Domestic Staff – A payroll set up for a nanny, cleaner, chauffeur etc. cannot claim the allowance.
- Functions either wholly or mainly of a public nature – if you carry out more than 50% of your work in or for the public sector you can’t claim.
- What if you start off below 50% but by the end of the year it’s over? Then anything you’ve claimed has to be paid back…..
The first makes sense to me, but the other two are quite bizarre exclusions. Please do check whether this applies to you.
If you’ve made it this far have a great 2014-15 and we look forward to working with you this year! 🙂
Thanks for reading!