ACCA ATX UK Syllabus A1. Income tax - The annual employment allowance - Notes 4 / 4
Employment allowance
Annual employment allowance
There is an employment allowance of £5,000 available per employer to reduce the employer’s Class 1 NIC payable.
This allowance cannot be used to reduce the employer's Class 1A NIC payable or the employee's Class 1 NIC payable.
It is only available to reduce the employer's Class 1 NIC payable.
This will reduce the liability that results from the calculation of Employer’s Class 1 NIC by £5,000.
Do not mistake this for a lower limit.
Illustration
Arya has a salary of £52,000 per annum.
What will her:
1) Employee’s Class 1 NIC payable be?
What will her employer's:
1) Class 1 NIC payable be?
2) Class 1 A NIC payable be?
Solution:
| Employee’s Class 1 NIC: | |
|---|---|
| £12,570 * 0% = | £0 |
| (£50,270-£12,570) = £37700 * 8% = | £3,016 |
| (£52,000-£50,270) = £1,730 * 2% = | £35 |
| Total Employee’s Class 1 NIC payable = | £3,051 |
| Employer’s Class 1 NIC: £9,100 * 0% = | £0 |
| (£52,000-£9,100) = £42,900 * 13.8% = | £5,920 |
| Employer’s Class 1 NIC liability | £5,920 |
| Less annual employment allowance | (£5,000) |
| Employer’s Class 1 NIC Payable | £920 |
| Class 1 A NIC payable= | Nil |
There is no Class 1 A because the employee was not given any employment benefits.