How can employment allowance help small businesses?
Updated: Jun 5
In the current cost of living crisis, it is vital for business owners to keepa tight control on their costs. One of the reliefs available to employers is employment allowance. Not every business is eligible to apply,but it can be a real benefit to those that can. In this blog post, we will delve into the concept of employment allowance, it's benefits and how it can impact businesses.
What is employment allowance?
Employment allowance is a government initiative that aims to reduce the burden of employers' National Insurance Contributions (NICs). Introduced in the United Kingdom in April 2014, the scheme allows eligible businesses to claim a certain amount of allowance that can be offset against their employer NICs liability. The primary objective behind this policy is to encourage businesses to hire more employees and stimulate job creation.
For the 23/24 tax year, Employment Allowance allows eligible employers to reduce their annual NIC Liability by up to £5,000 You pay less employers NI each time you run your payroll until the £5,000 has been used up.
Benefits for Businesses:
Cost Reduction: Employment allowance can significantly reduce a company's overall employment costs. Eligible businesses can claim a fixed amount as a reduction in their employer NICs liability, allowing them to allocate those funds to other essential areas. This saving can be used however the business chooses, but can be a real help towards staff training and other employment costs.
Hiring Incentive: By reducing the financial burden associated with employing staff, employment allowance provides a tangible incentive for businesses to hire additional employees. This can be particularly beneficial for small and medium-sized enterprises (SMEs) that may have limited resources but still want to expand their workforce.
Promoting Growth: With reduced employment costs, taking on staff becomes a more attractive proposition, enabling companies to grow.
Eligibility and Claiming Process:
To be eligible for employment allowance in the UK, businesses must meet certain criteria.
The employer must have a liability to pay employer NICs.
The business must be a limited company, sole trader, or partnership. You can also claim if you're a charity, including community amatuer sports clubs.
The employer must have paid less than a specific threshold amount of employer NICs in the previous tax year. For the 23/24 tax year, the threshold is £100,000
If you are part of a group of charities or companies, then the total ERS Class 1 NI Liability must be less than £100,000 and only one company in the group can claim.
Check if de minimis state aid limits apply to your business.
You cannot make a claim if:
You only have 1 employee paid above the Class 1 NI Secondary Threshold
The employee is also a director of the company
You cannot include anyone whose earnings are within IR35
You cannot include someone you employ for personal or domestic work, unless they are a care or support worker.
The process of claiming employment allowance involves making a declaration through the HM Revenue and Customs (HMRC) Employer Payment Summary (EPS). This declaration is typically made at the beginning of each tax year, and if approved, the reduction in employer NICs liability will be applied throughout the year.
Forgotten to make a claim for employment allowance?
If you didn't realise you were eligible to claim or if you forgot, don't panic! You can make a backdated claim to cover the past 4 years.
Employment Allowance was:
£4,000 per annum between 6/4/20 and 5/4/22
£3,000 per annum between 6/4/16 and5/4/20
Employment allowance serves as a valuable tool for businesses, providing financial relief and incentivizing job creation. By reducing employer NICs liabilities, companies can allocate those savings towards growth-oriented initiatives, expanding their workforce, or investing in innovation. It's important for eligible businesses to understand the criteria and claim process to take advantage of this beneficial scheme.
If we do your payroll for you, then you don't need to worry about any of this as we will assess your eligibility and automatically make a claim on your behalf, so you can relax and focus on what you do best - running your business!