Chancellor George Osborne has announced that the Employment Allowance (EA), designed to cut National Insurance contributions (NICs) for smaller employers, is to be raised to £3,000 from April 2016, partly to counteract additional costs to small businesses from the introduction of a National Living Wage (NLW)
Osborne said the 50% increase from the current £2,000 allowance is designed to support small businesses and charities to create jobs.
It comes in parallel with the government’s commitment to introduce a new NLW which will be compulsory for workers aged 25 and over.
The NLW rate will be set at £7.20 per hour from April 2016 and Osborne said the plan was to increase the rate incrementally to reach £9 per hour by 2020.
Osborne said he recognised that this new NLW may increase costs for some businesses, but the increase in the EA was intended to address this issue.
Osborne said that when introduced in 2014, the EA offset the NICs costs of employing four workers full time on the National Minimum Wage. The increase in the EA will mean firms will be able to continue to employ four workers full time on the new NLW next year, without paying any NICs.
Treasury calculations suggest that as a result of the new £3,000 EA limit, up to 90,000 employers will see their employer NICs liability reduced to zero.
Osborne also announced that to ensure that the NICs EA is focussed on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim EA.
In its response to the Budget, ACCA said: ‘We welcome that he took the opportunity to incentivise employers to pay the living wage. During the election campaign he and the Prime Minister spoke about raising wages for all but a commitment to eventually raising the minimum wage. This is the right direction at £9 per hour and increasing the NIC relief to £3,000.’
