Chancellor Rishi Sunak delivered his Spring budget last week and one of the announcements made was the increase in the Employment Allowance with effect from 6 April 2022 from £4,000 to £5,000.
The Employment Allowance was originally introduced on 6 April 2015 and provides eligible employers with a reduction against their Class 1 National Insurance liability. In light of the change we thought it would be useful to remind readers of how the allowance operates.
Employers are eligible to claim the Employment Allowance if their business or charity had employers’ Class 1 National Insurance liabilities of less than £100,000 in the previous tax year. From the 2024/25 tax year the £100,000 eligibility limit will also include the health and social care levy liability.
The majority of small businesses will qualify for the employment allowance but it is not available to public bodies or those businesses where 50% or more of their work is of a public nature. Examples include NHS or general practitioner services, provision of meals on wheels or refuse collection for a local council or debt collecting for a government department (providing security, cleaning or IT services for a government department or local council is not considered to be of a public nature for these purposes).
A company cannot claim the allowance if they have only one employee paid above the Class 1 National Insurance threshold and the employee is also a director.
In addition the allowance cannot be claimed against secondary Class 1 National Insurance contributions (NIC) payments made to:
- employees falling within the IR35 ‘off-payroll working rules’. Payments to off-payroll workers (for example, contractors) are known as ‘deemed payments’. These deemed payments do not count towards the £100,000 threshold.
- employees working on the employer’s personal, family or household affairs, although the employment allowance is available in respect of domestic care and support employees; or
- workers supplied from a personal or managed service company.
Connected companies (broadly those with common ownership), or companies with multiple PAYE schemes, only receive one allowance but it is optional which company or scheme receives it.
The Employment Allowance needs to be claimed every year tax year and cannot be rolled over from one year to the next. Generally the allowance is given by way of a reduction in employers NIC as it arises through the year. The allowance does not have to be claimed from the start of the tax year however, so is available to businesses that commence partway through the year. It can alternatively be claimed at the end of the tax year and a refund obtained.
It is possible to claim the Employment Allowance for the previous 4 tax years, dating back to the 2017 to 2018 tax year, if you have not already done so.
It should also be noted that the Employment Allowance now counts towards the total ‘de minimis state aid’ that a business is allowed to receive over a 3 year period, and businesses must take care not to exceed the de minimis state aid threshold for their sector.
Care must be taken to ensure the employment allowance is not duplicated, over claimed or otherwise deducted when the employer is not entitled to receive it. If you have any queries regarding its availability please contact our Tax Director, Jenny Marks.
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