Understanding the Employment Allowance & Your Eligibility as a Small Business

If you’re an employer that pays Class I national Insurance for your staff, you can offset up to £10,500 per tax year from your Employer National Insurance bill. 

This is what’s called the Employment Allowance, and is a great way for small businesses to pay less to HMRC and free up some funds for other initiatives. Very small businesses may even be able to pay no Employer National Insurance at all.

Find out more about the various Employment Allowance criteria and your eligibility as a small business below.

What is the Employment Allowance, and who is eligible?

A government backed scheme that allows eligible businesses and charities to offset a portion (or all) of their Employer National Insurance Bill, the Employment Allowance is factored in each time you run payroll until the relevant amount of Class 1 National Insurance saving has been used up.

Businesses can claim up to £10,500 in savings each tax year, and you can still claim the allowance if your liability was less than this. If your Employer NI bill exceeds £10,500, you’ll just pay the difference. But if it’s under £10,500 per year, you’ll pay no Employer NI at all. However, you won’t be able to claim the difference (e.g.: you can’t claim back £8,000 if your bill is £2,500). The Employment Allowance can be claimed at any point during the tax year.

In order to be eligible, businesses must:

• Have Class I NI liabilities of less than £100,000 in the previous tax year;

• be registered as an employer;

• have employees

The Employment NIC Allowance applies only to businesses (or charities), not individual employees. If your business is part of a group of companies, only one company can claim the allowance, and the total Class 1 NI liabilities must still be less than £100,000 across all the companies. The same applies if you have more than one payroll (i.e.: if you have more than one employer PAYE reference). Off-payroll workers should not be factored into your Class 1 NI liabilities.

Claiming Employment Allowance

How you claim the Employment Allowance depends on whether you’re already a user of payroll software or not. With a lot of software, it will simply be a case of selecting ‘Yes’ in the ‘Employment Allowance indicator’ field when you send an EPS to HMRC. Otherwise, you’ll need to download a free piece of software from HMRC called Basic PAYE tools.

With PayFit, however, it’s even simpler. Users simply edit their Employer registration details within the settings, selecting the ‘Claim employment allowance’ option. And that’s it - it’ll automatically reflect on your employer payment record report, which is submitted to HMRC on your behalf by PayFit, and the amount you owe is reduced. That’s one less thing to worry about!

See it in action for yourself by getting in touch and booking a demo of PayFit with a member of the team below.