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A Guide to the Employment Allowance

With the Employment Allowance, some businesses and employers can lower their annual National Insurance costs. Here, we'll explain which businesses can benefit from it.

What is the Employment Allowance?

The Employment Allowance lets businesses save money by reducing their National Insurance payments. You can cut your employers' Class 1 National Insurance contributions by up to £5,000 when you do your payroll. This continues until either you've saved £5,000 or the tax year ends, the allowance is £5,000 for 2023/24 however is able to change per tax year.

How Does it Work?

Running a business comes with various costs, and one of the significant expenses for small businesses is Class 1 National Insurance. The Employment Allowance allows you to lower the amount you pay for your employees' Class 1 National Insurance. You can do this every tax year, and the maximum reduction is £5,000 per tax year. If your Class 1 National Insurance payments are less than £5,000, you can still claim, but the amount will be less. Not all businesses can claim the Employment Allowance, so it's essential to check if you meet the criteria.

Are You Eligible?

Determining eligibility for the Employment Allowance can be a bit tricky because not all businesses qualify. You can claim if you are a business or charity, and your Class 1 National Insurance payments for employees were under £100,000 in the previous tax year. This includes community amateur support clubs and those employing care or support workers. If you are part of a group of companies or charities, the total Class 1 National Insurance payments for the entire group must be less than £100,000.

You cannot claim if you are a public body or if more than half of your work is in the public sector, except if you are a charity. You also cannot claim if your company has only one employee paid above the Class 1 National Insurance threshold, or if that employee is also a company director.

How to Claim

You can claim the Employment Allowance at any point during the tax year as part of your real-time information submission. You can do this through your payroll software or by using HMRC.

It's worth noting that not all employees can be included in an Employment Allowance claim, particularly those whose earnings fall under the IR35 rules. Additionally, you cannot include employees hired for personal, household, or domestic work, like nannies, cleaners, or gardeners, unless they are care or support workers.

If you would like to speak to an expert on this for additional advice, contact or 0141 266 0563.


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