The Government is to introduce an allowance of £2,000 per year for all businesses and charities to be offset against their employer Class 1 secondary NICs’ bill from April 2014. The allowance will be claimed as part of the normal payroll process. The Government will engage with stakeholders on the implementation of the measure after Budget 2013 and is seeking to introduce legislation later in the year.

Although this change is a year from now, the allowance should be factored into your payroll budgeting for next year. It is likely that payroll software will be updated to allow for the £2,000 reduction in employers’ Class 1 secondary NICs. For smaller businesses contemplating their first or further appointments into the employment arena this will be a welcome support.

Employers’ Class 1 secondary contributions are 13.8% of any wage or salary that exceeds the secondary threshold, currently £148 per week (£641 a month, £7,696 per annum). New employers could pay a salary or wage of up to £22,189 per annum to one employee and be liable for no employer’s National Insurance – ordinarily, employer’s NIC on this level of salary would amount to £2,000.

This scheme is not intended to replace salary sacrifice arrangements that will continue to offer employees and employers NIC savings. Whether it will help to stimulate new job creation or reduce unemployment is an open question.