Am I eligible to claim Employment Allowance for my business?

Am I eligible to claim Employment Allowance for my business?

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.  

Understanding Employment Allowance 

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 Employment Allowance 

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: 

  1. Employ staff and pay Class 1 NICs on their earnings 
  2. Have annual Class 1 NICs under £100,000 
  3. Belong to a group with combined Class 1 NICs below £100,000  

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.  

How to claim Employment 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.  

Can I backdate Employment Allowance claims? 

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.  

What are the benefits of claiming Employment Allowance? 

Claiming Employment Allowance aligns with HMRC’s objectives to bolster SME growth, offering: 

  1. Tax savings that can ease budget constraints and safeguard against unforeseen expenses 
  2. Improved cash flow, facilitating investment in business development or expansion 
  3. Encouragement for employment, supporting both business growth and workforce development  

We can help you claim Employment Allowance  

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.