The Government’s Employment Allowance scheme is an opportunity all businesses can explore but it is important to check if your business fits the eligibility criteria.
Employment Allowance allows eligible employers and companies to reduce their annual National Insurance liability.
Initially set at £5,000, Chancellor Rachel Reeves announced in last year’s Autumn Budget, the allowance would increase to £10,500 from April to reflect the changes in National Insurance rates.
This means you’ll play less Class 1 National Insurance each time you run your payroll. Paying less only runs until the £10,500 has gone or you reach the conclusion of the tax year.
Why is the Employment Allowance scheme in place?
The scheme is in place to help businesses with employee costs. It helps businesses grow, encouraging employment and gives them support.
Having the Employment Allowance in place allows employers to claim and pay less on Class 1 National Insurance each time they run payroll until they reach the limit or the tax year finishes.
The Employment Allowance is per business, not per employee and can only be claimed against one payroll.
If you exceed the £10,500 allowance, you would be required to pay HM Revenue and Customs (HMRC) the excess.
For example, if your business’ National Insurance bill comes to £11,500, you would need to pay HMRC the £1,000 excess spend.
Why did the Government Increase the Employment Allowance Threshold?
There was an increase to the Employment Allowance because the Government wanted to reduce the impact of the National Insurance increases which took effect at the same time.
In addition to this, as well as increasing the threshold to £10,500, the Government removed a restriction on larger employers claiming the allowance. This again, would coincide with the National Insurance increases announced during the 2024 Autumn Budget.
With the changes now in place, businesses can breathe easier and plan around the new measures in place.
It is very important to understand the Employment Allowance especially if you’re just starting your business.
Is my business eligible to claim Employment Allowance?
Most employers in the UK including charities and employers of care and support workers can claim Employment Allowance.
However, there are certain restrictions in place that mean not all employers can claim Employment Allowance.
Public sector employers other than charities cannot claim Employment Allowance. If you are council or local authority led business, you wouldn’t be able to claim but this very much dependent on how your business is classed.
Your business will be classed as a public authority if 50 per cent or more of their work is within the public sector. This means as an employer, you would not be eligible to claim for Employment Allowance.
You also are ineligible to claim Employment Allowance if all your company’s employer Class 1 NIC liabilities for a tax year relate to just one employee only. This also applies if the employee is a director in the company.
One further important restriction to remember is the Employment Allowance is only claimable against one payroll and one payroll only. You cannot claim the allowance against multiple payrolls if that is operational within your company.
How can I find out if my business is eligible?
If you are unsure about Employment Allowance and want to know if your business is eligible, the best approach to take is to seek legal advice by speaking to finance and tax experts who can help you understand your position.
They will provide all the advice and support you need to understand the scheme, what it does for businesses, if you’re eligible to claim and how to start that process.
Don’t miss out, see if your business is eligible to claim by speaking with our expert team today.