Employment Allowance for small businesses explained

Employment Allowance for small businesses explained

Allowance of Employment is claimed as part of a businesses’ HMRC payroll submissions. Since 2014, all eligible employers within the UK have been able to reduce Class 1 NIC’s by claiming for Allowance of Employment in their company. If claimed, employers are not required to pay the first £4,000 of employer’s national insurance – a huge saving opportunity for any small business!

Can I claim an employment allowance for my business?

If you have never claimed Allowance of Employment before, the good news is you can apply retrospectively for the past 4 tax years, dating back to the 2016/2017 tax year. Employment Allowance for these prior years was £3,000 per year, although your small business might actually be entitled to as much as £12,000 refund from HMRC, coupled with this year’s relief. 

Most small businesses are eligible for Allowance of Employment, although there are some exemptions which business owners should be aware of before applying:

Which small business types are exempt from Employment Allowance?

Class 1 liability over £100,000

  • Any small businesses owners with a secondary employer’s Class 1 NIC liability of £100,000 or more in the prior tax year are not eligible for claiming Allowance of Employment. It is advised that liability should be calculated by considering connected employers. Should all connected parties add up to £100,000 or more, no employers within this category would be eligible.

State aid

  • As of 6th April 2020, Allowance of Employment is operated as “de minimis State aid”. This means that employers who already claim de minimis state aid are required to check that they have sufficient balance available to make an Employment Allowance claim. If you have received de minimis state aid, this is something which you should have been notified about. Should you believe that you have received de minimis state aid but were not notified, clarify this with your scheme’s administrator. 
  • Any small business which receives more than their sectors ceiling or if it would breach their ceiling should Allowance of Employment be granted, then they would not be granted eligibility for Allowances of Employment. The applicable ceiling for most small businesses is EUR 200,000. It is recommended that small businesses owners verify this over on the HMRC website.

Single company directors

  • If a small business contains only one employee who is paid over the Secondary Threshold for Class 1 National Insurance contributions and if they happen to also be the company director, this business will not be eligible for Employment Allowances.
  • Additionally, small businesses with just one employee will also not be eligible for Employment Allowances.
How to claim Employment Allowances for my small business?

The best way to apply employment allowances for your business is to entrust this task to a professional accountancy firm. Based in Central London, Venn Accounts are chartered accountants who specialise in providing personalised accountancy services for small businesses and startups respectively. 

With an emphasis on going the extra mile for clients, Venn Accounts provide an all-encompassing service that is tailor-made for the needs of small businesses owners. Visit Venn Accounts website to arrange a consultation for your business.