Clause 4 - How does a person who qualifies for an employment allowance receive it?

National Insurance Contributions Bill – in a Public Bill Committee am 2:15 pm ar 21 Tachwedd 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke The Exchequer Secretary

The clause explains how a deduction or repayment of the employment allowance will be made. The main way for a qualifying employer to obtain the benefit of the employment allowance will be by means of a deduction from their secondary class 1 contributions during the tax year. For the Committee’s convenience, HMRC produced a draft of the administrative arrangements that will govern the making of such deductions.

To summarise, to keep the process as simple as possible for employers and thus maximise take-up, the employment allowance will be delivered through standard payroll software. Employers will need to self-declare their eligibility through their regular payroll processes. That confirmation will ensure that up to £2,000 in any one tax year will be deducted from their secondary class 1 contributions liability over the course of the year’s payments under pay-as-you-earn. For example, if in a tax year an employer has a liability of £3,000 in secondary class 1 contributions, the employment allowance of £2,000 will be deducted from that liability, leaving £1,000 of secondary class 1 contributions to pay.

The employer, as part of their payroll process, will offset the employment allowance against each monthly secondary class 1 contributions payment that they are  due to make to HMRC until such point as the allowance is fully claimed or the tax year ends. Using the example I have already given, and assuming an even distribution of secondary liability over the year, the employer would enjoy the employment allowance against NICs payments due in April to November. In December, the employer would recommence paying £250 in secondary class 1 NICs. The following year, the employer would again start deducting a fresh allowance of £2,000.

For those employers who still submit their returns to HMRC on paper, there will be a paper process that will mirror the IT procedures. We want employers to benefit from the employment allowance in real time, rather than wait for the end of the tax year to claim the repayment. Nevertheless, there are provisions to enable an employer who has not been able to do deduct the employment allowance, which he is entitled to during the tax year—perhaps because he has forgotten to claim or he was not aware of the availability of the allowance—to make an application to HMRC for a repayment after the end of the tax year. Applications for a repayment can be made up to four years after the tax year in which the employment allowance was due. For example, a repayment claim for the 2014-15 tax year, which ends on 5 April 2015, can be made up to 5 April 2019.

I hope that that is helpful and I know that this has been an area of considerable interest to the Committee, both at the evidence stage and before. However, I hope that the Committee will note that this is a simple process; the important thing is for employers to make sure that they click the necessary box which is part of their payroll system. Software providers will be working on exactly how that will be presented to them, but I hope that that provides some reassurance to the Committee on how this will be implemented.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 2:30, 21 Tachwedd 2013

I thank the Minister again for his introduction to the clause. I absolutely accept his point that from an administrative perspective, this is a simple system to enable employers to claim the allowance. I have couple of points around the software. The software obviously needs to support the simplicity of the process. The Minister will be aware that real time information has had a few issues in relation to the accessing of employers’ records. In particular, there have been some stories in the press recently about difficulties with RTI, so will he update the Committee on how that is going and whether it poses any particular issues for the employment allowance?

We have had a lot of discussion in this Committee around effective communication of the allowance, and I am pleased that there is a procedure in the legislation to allow it to be claimed when somebody did not realise that they were entitled to it. I hope that that information will be easily and readily available on the relevant Government website, and that signposting to employers who may have forgotten or did not realise that they could claim will be as clear as it can be.

Photo of David Gauke David Gauke The Exchequer Secretary

I am grateful for the comments and questions of the hon. Member for Birmingham, Ladywood. She is right to highlight real time information, but it is worth pointing out that delivering this particular policy would have been much more difficult for both employers  and HMRC without RTI being in place. It is worth bearing that in mind when it comes to the question of why the employment allowance was not introduced earlier. It would have been extremely difficult to have done this without RTI being in place.

The hon. Lady asked how the introduction of RTI is going. Given the ambition that was involved when introducing RTI, which was the biggest change in the PAYE system since it was introduced in 1944, we are pleased with the progress that has been made. By the time that the employment allowance is introduced in April 2014, almost all employers will have been mandated into RTI. The roll-out of RTI continues to go well; over 90% of schemes are now reporting PAYE in real time for over 99% of individual PAYE records. HMRC is working closely with employers and their representatives while they are making the transition. Using the RTI platform for delivering the employment allowance will ensure that it will be simple to claim for employers. It will be a tick in the box once the employer payment summary, or EPS, is on their software. Those employers who do not have that facility on their software can use the free HMRC basic PAYE tools package.

For those eligible employers—around 2,000—who still submit their returns to HMRC on paper, there will be a paper process that will mirror the IT process, as I mentioned earlier. I hope that provides reassurance that we have got the PAYE infrastructure in place to implement the measure smoothly.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.