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Employment Allowance: Eligibility, Claims, and Benefits

Are you a business owner looking to reduce your annual National Insurance bill? The Employment Allowance offers an excellent opportunity to do just that. This government initiative is designed to support businesses by lowering their tax burdens. In this article, we will explain what the Employment Allowance is, who qualifies for it, and how to claim it, helping you take full advantage of this beneficial relief.

What is Employment Allowance?

Introduced in 2014, the Employment Allowance is a government relief aimed at reducing the annual National Insurance contributions for eligible businesses. It allows businesses to claim up to £5,000 off their Class 1 National Insurance each tax year. This initiative helps businesses manage their financial obligations more effectively, enabling them to allocate the saved funds to other essential areas. By alleviating part of the financial burden, the allowance supports the overall growth and sustainability of businesses across the UK.

Who is eligible?

Eligibility for the Employment Allowance extends to a wide range of businesses and charities. Generally, businesses can claim this allowance if they pay Class 1 National Insurance contributions for their employees. However, there are specific criteria to be met:

  • You must be a business or charity
  • Your employer’s National Insurance contributions (NIC) liability must have been less than £100,000 in the previous tax year.

Exclusions:

  • Public bodies or businesses doing more than half of their work in the public sector (e.g., local councils, NHS services).
  • Companies with only one employee paid above the Class 1 National Insurance secondary threshold, where that employee is also a director of the company.

How to claim

Claiming the Employment Allowance is a simple and easy process:

  1. Confirmation: Ensure your eligibility before making the claim.
  2. Payroll software: Most businesses can claim through their payroll software. When running payroll, select ‘Yes’ in the Employment Allowance indicator field.
  3. HMRC’s basic PAYE tools: If you do not use payroll software, you can claim through HMRC’s Basic PAYE Tools.
  4. Multiple PAYE schemes: If you operate multiple PAYE schemes or companies, you can only claim Employment Allowance for one.
  5. Annual claim: Remember to confirm your claim every tax year.

For more detailed guidance, refer to the official HMRC guide.

When to claim Employment Allowance

Employment Allowance can be claimed at the beginning of the tax year. The claim should be made as soon as possible to maximise the benefit over the full year. If you miss claiming at the start of the year, you can still claim at any point during the tax year, but the allowance will only apply from the start of the month in which you claim.

Additionally, you can backdate your claim for up to four previous tax years if you were eligible but did not claim.

How BK Plus can help

Our team of experienced accountants can assist you in determining your eligibility and guide you through the claiming process. We offer personalised support to ensure you take full advantage of available reliefs and comply with all HMRC requirements.

Contact BK Plus today to learn how we can support your business with Employment Allowance and other financial needs.

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