Employment allowance explained

Are you a business owner that employs staff? If so, you may be eligible for a tax relief known as the Employment Allowance. Introduced to ease the burden of employers' Class 1 National Insurance liabilities, the Employment Allowance can be a significant aid for many organisations.​

In this article, we'll break down what the Employment Allowance is, who can claim it, and how you can benefit from this relief.​

The Employment Allowance is a scheme that allows certain employers to reduce their Class 1 National Insurance liability, ultimately saving money on their payroll expenses. It was implemented to support businesses and charities in their efforts to employ staff.​

For the 2023/24 tax year, the maximum Employment Allowance is £5,000.  ​

If your total employers’ Class 1 National Insurance liability for the tax year is less than the maximum Employment Allowance, you can’t claim the difference.​

Businesses and charities whose total employers’ Class 1 National Insurance liabilities for the previous tax year were less than £100,000 are eligible to claim employment allowance. Private individuals / families employing care or support workers are also eligible.​

Keep in mind that if your business or charity is part of a group of connected companies, the group’s total employers’ Class 1 National Insurance liabilities for the previous tax year must be less than £100,000. Only one of the companies in the group can claim the Employment Allowance.​

The following employers can’t claim the Employment Allowance:​

The following employees can’t be included in Employment Allowance claims:​

Additionally, for certain businesses, the Employment Allowance counts towards financial support from the government, known as ‘de minimis state aid’.  There is a limit to the amount of de minimis state aid affected businesses can claim over a 3-year period and, if they exceed the limit, they cannot claim the Employment Allowance.  The limits are likely to apply if your business is located in Northern Ireland and makes or sells goods or wholesale electricity.​

The process of claiming the Employment Allowance is relatively straightforward. If you meet the eligibility criteria, follow these steps:​

Did you know that you can claim the Employment Allowance for the previous four tax years as well? However, the eligibility criteria differ for each of these years.​

Up until the 2019/20 tax year, the maximum Employment Allowance was £3,000. From the 2020/21 and 2021/22 tax years, the maximum allowance was increased to £4,000. So, if you've missed claiming the Employment Allowance for any of these years, don't worry; you can still reach out to HMRC for a refund of the employers' Class 1 National Insurance that you previously paid.​

By taking advantage of this relief, you can free up funds that can be invested in growing your organisation or providing additional benefits to your employees.​

However, navigating the Employment Allowance and its intricacies can be daunting, especially for busy entrepreneurs. That's where professional assistance, like the services offered by Beany, can be beneficial. If you're unsure about the Employment Allowance or need help with your tax matters, reach out to experts to guide you through the process and ensure you make the most of this financial relief.​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​​We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.​