A Guide to Employment Allowance

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In the current economic environment, it is more important than ever that every employer is making efforts to save money wherever they can. This is why schemes such as Employment Allowance can be so useful to take advantage of. They can reduce financial impacts, such as National Insurance, whilst growing your business.

What Is Employment Allowance?

Employment Allowance is a government initiative that allows eligible employers to reduce their National Insurance liability by up to £5,000 for the 2024/25 tax years. Hiring new employees costs an employer in training, equipment, wages, and tax so this means that smaller businesses can receive help with employment costs, allowing them to pay less employer’s class 1 National Insurance.

They will pay less employers’ Class 1 National Insurance each time they run payroll until the £5,000 has gone or the tax year ends (whichever is sooner). Any excess of the £5,000 allowance will need to be paid to HMRC. This allowance applies to the employer’s Class 1 NICs liability – it cannot be used against Class 1 A or Class 1B liabilities. You can check on HMRC’s website to see if your company is eligible to claim.

What Is an Employer’s National Insurance?

National Insurance (NI) is the amount of money owed to HMRC depending on how much each employee earns, and it is made up of two payments: one from the employee and one from the employer.

An employer pays Class 1 (secondary) National Insurance on the employee’s earnings if they are above the Secondary Threshold, currently £9,100 per tax year. For the upcoming tax year, the rate is 13.8%.

An employee pays Class 1 (primary) National Insurance if they are under the State Pension age and earn above the Primary Threshold, currently £12,570 per tax year. For the upcoming tax year, the rate is 8%.

How Do I Claim Employment Allowance?

You need to claim Employment Allowance every tax year. You can claim at any time in the tax year, but the earlier you claim the sooner you will get the allowance. The £5,000 Employment Allowance is per business, not per employee, and can only be claimed against one payroll if your business has multiple payrolls.

To be eligible for Employment Allowance you must be:

  • registered as an employer.
  • a business or charity with documented employees.
  • have employers’ Class 1 National Insurance liabilities less than £100,000 in the previous tax year.
  • If you only have directors on the payroll, you need 2 or more to qualify (one director payrolls do not qualify.)

To submit a claim you will need to indicate this through your payroll submission to HMRC by selecting ‘Yes’ in the Employment Allowance Indicator field.

Can I Claim for Previous Years?

If you do claim Employment Allowance, you can backdate this pay. However, you can only backdate payment as far as four years prior to your first claim. It is also important to note that Employment Allowance has changed over the years. For example, from 2016-2020 the allowance was £3000 and between 2020-2022 the allowance was £4,000. This means that back-dated pay will differ in the amount you’re eligible for.

To make a claim, you will need a separate EPS (Employment Payment Summary) for each year you claim for when making any claims for ended tax years.

Who Is Not Eligible To Claim Employment Allowance?

Businesses doing more than 50% of their work in their public sector cannot claim (unless they are a charity).

If you’re part of a group of charities or companies (also known as connected companies), the total employers’ Class 1 National Insurance liabilities for the group must be less than £100,000. Only one company in the group can claim the allowance, and you can only claim Employment Allowance against one of the payrolls.

Our Advice!

We hope this guide to Employment Allowance has been helpful!

It is important nowadays that companies are taking every opportunity to save money. We are experienced in helping smaller businesses save money so if you have any questions or would like more information, please contact us info@future-cloud.co.uk.

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