Employment Allowance Explained
Posted on 7th June 2022 at 11:56
Here at Office Minder, we have all of the processes in place to make sure that our clients' books are up to date and that we are helping them to save money where they can. However, we know that many small businesses need help with maintaining their accounts and keeping up to date with thresholds.
It was announced in the spring statement that the Employment Allowance has increased from £4000 to £5000 from April 2022. The Employment Allowance provides relief on employer National Insurance contributions and the recent increase was welcomed by many small businesses and charities who are eligible to claim.
What Is National Insurance?
Working people make National Insurance (NI) contributions to be eligible to receive a state pension and other benefits. National Insurance is a payment that is made by both the employee and the employer and it is based on how much the employee earns. The employer is responsible for making the correct National Insurance contribution on behalf the employee and the employer payment also. More information on both employee and employer rates, can be found here. You may hear the term, classes in relation to National Insurance. Put simply, classes define the type of work that someone does and the amount of money that they earn doing it.
Can I Get The Employment Allowance?
The Employment Allowance, only applies to the employers NI contributions and are taken off during each payroll, until the allowance (currently £5000) has been used up. The allowance then replenishes at the start of the new tax year. Crucially, you can still benefit from the £5000 allowance, even if you do not need to use all of it up. If you answer yes to the points below, then you may be eligible to claim the Employment Allowance.
Do you run a charity or a business?
Do you employ at least one person?
Are your NI liabilities in the previous tax return year less that £100,000?
If you are a first time employer, it is worth noting that there are always exceptions so please read on to learn more...
Some Employment Allowance Exceptions
If you employ one person who is also a director of the business, and they earn more than the secondary threshold of NI (currently £758) per month, then you cannot claim the Employment Allowance
The above applies if you employ more than one person but one of them is a director, you cannot claim.
If you make or sell goods or services then the Employment Allowance, counts as de minimis state aid. This page illustrates an example and sets out the aid per sector.
How Do I Claim Employment Allowance?
As part of your PAYE reporting process you can tick a box using the HMRC's tool or via your payroll software to claim the Employment Allowance.
You can start using the allowance straight away, you do not need to wait for confirmation. The only contact that you will receive from HMRC on this matter will be if you are rejected.
Do You Need Help With Accounting?
It is hard to run a business and keep on top of all of the bookkeeping and accountancy tasks. If you are making a backdated claim for Employment Allowance for example, you can go back 4 years but the rules may be different in previous years. If you are missing out on these types of claims, it may be worth having a conversation with us, here at Office Minder to see how we can help with your small business finances and accountancy.
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