Employment Allowance for Small Businesses: Everything You Need to Know
As a small business owner in the UK, you may have heard about the Employment Allowance but are unsure of what it is and how it can benefit your business. In this article, we will answer all your questions about Employment Allowance and help you determine if your business is eligible for this valuable tax relief.
What is Employment Allowance?
Employment Allowance is a scheme introduced by the UK government in 2014 to help small businesses and SMEs reduce their National Insurance (NI) contributions. It allows eligible businesses to claim up to £4,000 in employment allowance each year, which can significantly reduce their overall tax bill.
Who is eligible for Employment Allowance?
Employment Allowance is available to most businesses and charities that pay Class 1 National Insurance contributions on their employees’ or directors’ earnings. However, there are a few exceptions, including:
1. Businesses with only one employee or director who is paid above the secondary threshold for NI contributions.
2. Companies where the director is the only employee and they are paid above the secondary threshold for NI contributions.
3. Businesses that provide personal or domestic services, such as nannies, gardeners, or chauffeurs.
If your business falls into any of these categories, unfortunately, you will not be eligible for Employment Allowance.
How to claim Employment Allowance?
If your business is eligible for Employment Allowance, you can claim it through your payroll software or HM Revenue and Customs (HMRC) online service. You can also claim it through your accountant or payroll provider if they handle your payroll.
To claim through your payroll software, you need to select ‘Yes’ in the Employment Allowance indicator field. If you are using HMRC’s online service, you will need to select ‘Yes’ in the Employment Allowance indicator when you submit your Employer Payment Summary (EPS).
If you are claiming through your accountant or payroll provider, they will handle the process for you, and you do not need to do anything.
What are the benefits of Employment Allowance?
The main benefit of Employment Allowance is that it can help reduce your business’s overall tax bill. By claiming up to £4,000 in employment allowance each year, you can save a significant amount of money, which can be reinvested back into your business. This can help with cash flow and provide your business with the financial boost it needs to grow and thrive.
Additionally, claiming Employment Allowance can also help you attract and retain top talent. By reducing your NI contributions, you can offer your employees a more competitive salary or other benefits, making your business more attractive to potential candidates. This can also improve employee morale and loyalty, leading to a more productive and engaged workforce.
Are there any changes to Employment Allowance in 2021?
In 2020, the UK government announced changes to Employment Allowance, which came into effect on April 6, 2020. These changes were made to restrict the scheme to smaller businesses and prevent larger businesses from claiming it.
Under the new rules, businesses with an employer’s Class 1 NI liability of £100,000 or more in the previous tax year will no longer be eligible for Employment Allowance. This change aims to target the scheme towards small businesses and SMEs that need it the most.
However, if your business was eligible for Employment Allowance in the previous tax year, you can continue to claim it in the current tax year, even if your NI liability has increased above £100,000.
In Conclusion
Employment Allowance is a valuable tax relief scheme that can benefit small businesses and SMEs in the UK. By claiming up to £4,000 each year, you can reduce your overall tax bill and have more funds to invest back into your business. It can also help you attract and retain top talent, leading to a more productive and engaged workforce.
If you are unsure if your business is eligible for Employment Allowance, it is best to consult with your accountant or HMRC. They can provide you with more information and help you with the application process if needed.
In conclusion, Employment Allowance is a great opportunity for small businesses and SMEs to save money and grow their business. So, if you are eligible, make sure to take advantage of this valuable scheme.
