The Employment Allowance gives your company the opportunity to reduce its annual National Insurance Employers’ Contributions bill by up to £3,000 a year. Its original aim was to encourage one-man bands to take on additional staff and, since launch, it has become one of the most claimed-for reliefs by British businesses.
It doesn’t apply to every company though so in this article, we will provide you with a rundown of the Employment Allowance and how it affects you.
Who can claim Employment Allowance?
From the start of the 2016/2017 tax year, Employment Allowance was withdrawn from one-person-only companies – companies where the director is the sole employee.
If you do have a member of staff, you will have to pay them a minimum of £157 a week (£680 a month/£8,164 a year) to qualify for Employment Allowance.
Employment Allowance can not be used for employing someone to work in your household – a nanny or a gardener for example.
Likewise, if you’re a service company and you’re on IR35 and your only income is the earnings of your intermediary (for example, a personal services company, limited company, or partnership), you can’t claim Employment Allowance.
If your company does more than half of its work for the public sector (schools, councils, NHS), you also may not enrol on the scheme.
What can my business claim with Employment Allowance?
Your £3,000 Employment Allowance is offset gradually against your secondary Class 1 National Insurance bill.
You start with £3,000 and every time you make a payment in secondary Class 1 National Insurance contributions (i.e when you are paying your staff), the amount you have left in your Employment Allowance account decreases.
That means that you only start paying secondary Class 1 National Insurance contributions once you’ve passed the £3,000 threshold. If your business paid £15,000 worth of secondary Class 1 National Insurance contributions in a year, the Employment Allowance would reduce the amount you actually pay to £12,000.
This is how your Employment Allowance is used
Let’s take an example of a company with annual secondary Class 1 National Insurance contributions of £4,200, paid at £350 per month…
|Month||Employers NIC that month||Available Employment Allowance||Allowance used in that month||What you’d pay HMRC on the 22nd||Your allowance carried forward|
As each £350 payment is made, the amount left in the Employment Allowance account diminishes by the same amount. In month 9, when the £350 payment is made, the final £200 of the Allowance is used up meaning that you have to pay the balance of £150 (£350 minus £200) to HMRC by the 22nd of the month following.
How do I claim for Employment Allowance?
You claim for Employment Allowance through your payroll software. You only need to make the claim once and, each year, the Allowance will be reapplied to your HMRC PAYE account until you tell HMRC to stop.
Payroll is very complicated and for all clients, we recommend that you contact your Kelsall Steele accountant to run your payroll and take care of all payroll-related issues for you.
Employment Allowance – can I claim on previous years?
No, unfortunately not. This is a “use it or lose it” relief.
Contact Kelsall Steele about the Employment Allowance
For all Employment Allowance and payroll-related issues, please call us at any time on 01872 271655 or email firstname.lastname@example.org.