Employment Allowance offers a significant opportunity for SMEs to ease the financial pressures associated with employing staff, particularly at crucial stages of business growth.
It does so by allowing a reduction in National Insurance Contributions (NICs), which helps to prevent cash flow challenges.
The Employment Allowance is a Government initiative designed to lower the annual employer NIC liability for eligible businesses.
Currently, it allows a reduction in NICs of up to £5,000. Employers may claim this reduction in Class 1 NICs with each payroll cycle until they reach the full allowance or the tax year ends.
Eligibility for claiming the Employment Allowance is specific to certain businesses.
Your business must incur some level of Class 1 National Insurance to qualify, excluding sole traders from eligibility.
Eligible entities include businesses, charities, or community sports clubs that:
Notably, certain payments, such as those to contractors classified as ‘deemed payments’, do not contribute to the £100,000 threshold.
Even if your total NIC bill falls below £5,000, you may still claim the allowance up to the total of your NIC bill.
For businesses in Northern Ireland dealing in goods manufacturing or sales, it is important to ensure compliance with the ‘de minimis state aid’ allowance.
The process for claiming Employment Allowance depends on your payroll system.
Users of the Basic PAYE Tools from HM Revenue & Customs (HMRC) can apply by selecting the ‘Employment Allowance indicator’ option when submitting their Employer Payment Summary (EPS).
Those using alternative software should adhere to their provider’s prescribed process.
Businesses have the opportunity to claim Employment Allowance for previous tax years up to a specified limit.
Presently, claims can extend back to the four preceding tax years, starting from the 2018/19 tax year, with allowances applicable at the rates set for each respective year.
The Employment Allowance was set at £3,000 annually for the period from 2016/17 to the 2019/20 financial years, before increasing to £4,000 for the 2020/21 and 2021/22 financial years.
For the 2018/19 and 2019/2020 tax years, businesses are permitted to claim Employment Allowance regardless of the total amount of their Class 1 NICs or the level of de minimis state aid received.
Claiming Employment Allowance aligns with HMRC’s objectives to bolster SME growth, offering:
While claiming Employment Allowance is relatively straightforward, our team is ready to assist you in navigating the complexities of payroll management and enhancing your business’s tax efficiency.
We offer support in determining your eligibility for Employment allowance and incorporating these savings into your broader financial strategy.
Get in touch with our team today for expert advice.
