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Businesses to benefit from £2,000 cut to National Insurance bills


Every UK business will save £2,000 on its annual national insurance bill from April 2014, following changes announced in the Budget.

Chancellor of the Exchequer George Osborne said that the new Employment Allowance would particularly benefit small businesses, 450,000 of which would no longer pay any employer national insurance contributions (NICs) once the allowance takes effect. The relief will also be made available to charities and community sports clubs, he said.

"It's a tax off jobs," Osborne said in a speech accompanying the Budget. "For every person who's set up their own business, and it thinking about taking on their first employee, a huge barrier will be removed. They can hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax."

The new allowance will be deducted from an employer's NIC liability over the course of the year's payments through Pay As You Earn (PAYE), and will be applied via standard payroll software as well as HMRC's Real Time Information system. It will be introduced once an employer confirms its eligibility through its regular payroll processes, and the Government intends to confirm the design and operation of the system through discussions with business representative bodies.

The creation of the new allowance comes shortly after the Government announced new measures to prevent businesses from using offshore intermediaries to avoid their employment tax liabilities. According to HMRC, at least 100,000 workers are employed in this way, in some cases without their knowledge. The Government announced on Monday that it would consult in May on how ensure that employment taxes were "payable for all employees in the UK", without affecting businesses that use offshore intermediaries for "legitimate commercial reasons".

Employment tax expert Matthew Rowbotham of Pinsent Masons, the law firm behind Out-Law.com, said that the new allowance would be "welcome news" for employers, "assuming that it's as simple as promised".

"Small businesses and charities will be the biggest winners from this change, since it will make a significant dent in their employee costs," he said. "Whether it is sufficient to stimulate hiring by SMEs remains to be seen."

He urged businesses the made use of offshore intermediaries for payroll purposes to "keep a close eye" on the Government's plans in case the consultation had "a wider impact beyond the targeted planning".

"A number of non-UK businesses rely on the current rules in the early stages of setting up a UK business, before they have a substantial UK presence," he said. "Changes to the law could impact how quickly they will need to organise full PAYE procedures for any employees who spend time in the UK."

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