Save £5,000 with the National Insurance holiday

The number of businesses applying for the National Insurance 'holiday' has fallen to an all-time low.

This is according to a report from accountancy firm UHY Hacker Young, which suggests that just 400 firms applied for the scheme during December 2012. This represents a 44 per cent decline when compared with the same month in 2011.

The longwindedly titled Regional Employer National Insurance Contributions (NICs) Holiday for New Businesses provides a potential saving of up to £5,000 for new businesses based outside the South East and Eastern England. The saving is generated through a voluntary withholding of employers' NICs for each of a business's first ten employees.

The scheme was launched with some fanfare in September 2010, but take-up has been far lower than expected. The 'holiday' is scheduled to end this September, and will be replaced by the less generous Employment Allowance.

The National Insurance holiday presents small businesses with an important means by which they can make hiring more cost-effective. So how do you apply?

Is my business eligible?

The National Insurance holiday is voluntary and, as a result, thousands of businesses that are eligible for the scheme are not taking advantage of it.

The holiday has strict eligibility criteria. One of the most important restrictions is that of location. The holiday is only available to firms whose principal place of business is in one of the following regions when they start up:

⁃ Northern Ireland
⁃ Scotland
⁃ Wales
⁃ East Midlands
⁃ North East
⁃ North West
⁃ South West
⁃ West Midlands
⁃ Yorkshire and Humber

In the event that you do not have an obvious principal place of business, you should base your eligibility on "the place where you keep your equipment, retain your business records or carry on the administrative parts of your business."

Provided that you are based in the right location, you can then consider the next stage of eligibility. The holiday only applies to businesses that started to trade on or after 22 June 2010, and runs for 12 months after the date on which your business started. As explained above, the scheme ends on 5 September 2013, and you will not be able to withhold NICs after that date, regardless of when your business started.

The holiday is only available to businesses of the following types:

⁃ Sole traders, limited companies, or partnerships carrying on a trade, profession, or vocation
⁃ Property businesses or investment businesses
⁃ New trading charities

How do I apply?

If you are confident that your business meets the eligibility criteria for the holiday, your next step is to apply. In order to do so, you must already be registered as an employer with HMRC. You will need the PAYE and Accounts Office references that you received when you registered in order to fill out the form.

You will be able to use HMRC's online application process provided that your principal place of business is in the UK, you are not in receipt of any other de minimis State Aid (see the following section for more information), and your business is not in the agriculture, fisheries, road transport, or forestry sectors.

You can use the online application form on HMRC's website here.

Does this affect other support I'm entitled to?

Potentially, yes. The holiday is classed as 'de minimis State Aid', and there are restrictions of the amount of this aid that you can claim in any financial year. Other aid such as innovation vouchers may affect your entitlement to the holiday, although the vast majority of businesses will be able to claim. Detailed guidance on de minimis State Aid is available on the government's .GOV website.