New businesses which start up in certain areas of the country are able to enjoy a holiday from paying employer National Insurance contributions in respect of the first ten employees that they take on during the first year of business. The holiday can generate NIC savings of up to £5,000 per employee, giving the employer potential NIC savings of up to £50,000.
The Regional Employer NIC Holiday Scheme was announced by the Chancellor in the Emergency Budget on 22 June 2010. It aims to encourage businesses to start up in areas of the country traditionally reliant on public sector employment. The scheme runs for three years from 6 September 2010 to 5 September 2013.
Am I Eligible?
To be eligible to join the scheme, a new business must start up in the period 22 June 2010 to 5 September 2013 and its principal business must be located outside an excluded area. Excluded areas are Greater London, the Eastern Region and the South Eastern Region. The business link website (http://www.businesslink.gov.uk/) contains a postcode checker to enable a business to check that it is not operating in an excluded area. Anti-avoidance provisions apply to ensure that the business really is a `new’ business.
The business must also take on qualifying employees. These are the first ten employees taken on during the first year after the business starts. In deciding whether the limit of ten has been reached, all employees, including directors, are counted, including those whose earnings are below the earnings threshold (£110 per week for 2010/11).
Operating the Scheme
Under the scheme, the employer is allowed a break from paying employer National Insurance contributions for up to a year for the first ten employees taken on in the first year after start up. However, employee contributions remain payable.
The holiday for each employer lasts for a year, unless the scheme end date of 6 September 2013 falls before that year is up. Further, the holiday is limited to employer NIC savings of £5,000 per employee and the `holiday’ ends once this limit is reached if this occurs before the end of the employee’s first year of employment.
How Do I Apply?
Entry to the scheme is not automatic. New businesses meeting the eligibility criteria must apply by completing the application form which is available on the Business Link website (http://www.businesslink.gov.uk/). HMRC will confirm by email that an application has been successful.
Once in the scheme the business will work out NICs in the normal way. However, they will not pay over employer NICs for the qualifying employees for the duration of the holiday period to HMRC. Instead, they get to keep the money. The employer must keep records of the employees in respect of whom a holiday is taken for and the amount of employer NIC withheld.
At the end of the year the employer must complete the year end returns as if the NIC had been paid over to HMRC in the normal way. However, an additional return will be required showing the NIC withheld in respect of the holiday scheme.
Guidance for new businesses thinking of joining the scheme is available on the Business Link website (http://www.businesslink.gov.uk/).
By Sarah Bradford