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National Insurance is a tax any business must pay, but did you know there could be some tax relief for you? Take a look below to find out more.

What is the Employment Allowance?

The Employment Allowance is a National Insurance Allowance that allows some employers to reduce their Employers Class 1 National Insurance bill by up to £4,000. There are some important exclusions to consider, as not all employers benefit from this allowance.

Which employers are eligible?

For the tax year of 2021/22, if an employer has employers’ Class 1 National Insurance liabilities of less than £100,000, they may qualify for the Employment Allowance. In circumstances where the employer is part of a group, the £100,000 limit is applied to the group combined, not just the individual company.

If a business has a sole employee who is also the director, the Employment Allowance is not available. Personal companies are generally excluded, but family companies with more than one employee are still eligible to claim.

Companies who employ someone for personal, household, and domestic work would be unable to claim the Employment Allowance. However, if the worker is for care or a support worker, then they may be entitled to claim the Employment Allowance.

What is the allowance amount?

If the Employment Allowance of £4,000 is claimed, it’s offset against the employers’ Class 1 National Insurance Liability until it’s used up.

Example

ABC Ltd is eligible for the Employment Allowance. Its secondary Class 1 National Insurance liability is £1,500 a month. It claimed the Employment Allowance at the start of the 2021/22 tax year. The allowance is used as follows:

Month 1: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £2,500 (£4,000 – £1,500) is carried forward.

Month 2: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £500 (£2,500 – £1,500) is carried forward.

Month 3: The remaining £500 of the Employment Allowance is set against the liability for the month of £1,500, leaving £1,000 to pay. The Employment Allowance has now been used in full.

Months 4 to 12: The Employment Allowance has been used in full, so the employer’s Class 1 National Insurance liability for the month of £1,500 is payable in full.

How does your business claim the allowance?

HMRC does not automatically allocate this allowance to you each year. It’s something you must claim. It’s simple to do, and can be claimed through payroll software, provided the software has an Employment Payment Summary (EPS) feature. If your payroll software doesn’t have EPS, they can use HMRC’s Basic PAYE Tools to claim.

There is no deadline for applying for the Employment Allowance during the tax year. However, the earlier the claim is made, the earlier the Employer will start to see the benefits.

If an eligible employer did not claim the Employment Allowance, retrospective claims can be made for up to the last four tax years.

Don’t miss out and take a look to see if you could be eligible for the Employment Allowance.

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Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant