You might have received an Employment Allowance letter in the post this month and be left wondering what is it is.
If you’re feeling unsure as to what it is, why you’re eligible and what it involves, we can help.
Our quick guide gives you all the information you need on the £5,000 Employment Allowance for small business owners.
What is Employment Allowance?
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.
The allowance was put into place to support small businesses with their employment costs.
Each time you run your payroll you’ll pay less employers’ Class 1 National Insurance until the £5,000 allowance has gone, or the tax year ends. It is not a lump sum amount paid to an employer or business.
How do I know if I’m eligible to claim?
In order to be eligible for Employment Allowance you’ll need to tick a few boxes:
- You must be registered as an employer
- Specifically, a sole trader, limited company or partnership that has employees
- You can also be registered as a limited company that employee only directors, where two or more directors earn more than the secondary threshold for Class 1 NI contributions
- Employers’ Class 1 National Insurance liabilities need to be less than £100,000 in the previous tax year
- Don’t include off-payroll workers in your calculations, they don’t count towards the £100,000 threshold
You can find more eligibility information on the Government website here: https://www.gov.uk/claim-employment-allowance/eligibility
How does the allowance work?
Firstly, you need to note that the £5,000 allowance applies to your business, not to individual employees.
If you have more than one payroll, you can only claim against one of them. Similarly, in groups of companies or where there is common control across multiple companies, the allowance can only be claimed in one company.
You can claim at any point during the tax year as part of your Real Time Information submission to HMRC and you can start utilising your allowance as soon as you submit the claim.
Note, claiming Employment Allowance isn’t an automatic process – you’ll need to tell HMRC that you qualify and want to claim. You’ll also need to claim every tax year to ensure you’re still eligible.
Tip – you can backdate claims for four previous tax years. So, if you haven’t claimed and think you’re entitled to claim, it’s worth doing now.
Seeking support?
Here at Shenward we help our clients with claiming their Employment Allowance where it is tax efficient to do so. If you want assistance on making your claim please contact us today:
+44 (0)1274 722666
hello@shenward.com
