Claiming an Employment allowance could reduce the tax paid in your business.

However, this relief can only be claimed by eligible businesses.

What is an employment allowance?

This is a tax relief that the revenue put in place to help support business owners that employ team members.

Employers are usually required to pay employers national insurance on income paid to their employers.

Illustration of how the employment allowance is claimed

E.g. Jack employs Janet and pays him £1,000 a month, he will deduct from his wages the employee’s national insurance at 13.25% and he would have to pay 15.05% on the £241.99(£1000- £758.01).

Jack would not have to pay employee national insurance until such a time that the cumulative employer’s national insurance exceeds £5000.

How to check if your business is eligible for the relief?

1. To claim this allowance you have to have a UK registered business or a charity registered in the UK.
2. To be eligible for this relief, the turnover for the previous tax years must be less than £100,000.
3. If your business runs more than on payroll, you can only claim employer allowance on one of the payrolls.
4. The business can only be eligible if the company has more than one employee that is also the director.
5. A business is a company that operates within the IR35 legislation
6. If you are a business that is a public body or doing more than half of your work in the public sector unless you are a charity, you cant claim this relief.

How to claim Employment Allowance?

This tax relief is not automatically applied to employers that run payroll for the team members.

To claim this allowance, you will have to submit an employment payment summary (EPS) using payroll software.

This must be submitted tax year by the employer.

If you become ineligible during the tax year, you have to submit another EPS to state you do not qualify for the allowance.

Conclusion

Claiming an employment allowance will help to save a lot of money if your business is eligible.

The increase of this allowance from £3000 to £5000 from previous years will also help to save cost with the increase in national insurance cost.

If you would like us to support your business with your payroll compliance with the HMRC and also claim this relief kindly contact us.