What is Employment Allowance, and am I eligible?

The government's Employment Allowance scheme presents a great opportunity for eligible businesses in Bromsgrove and throughout Worcestershire to reduce their National Insurance liabilities. This can help with your cash flow during the current challenging economic climate.

This simple guide explains the Employment Allowance, who is eligible, the claiming process, and practical tips for local business owners.

What is Employment Allowance?

The Employment Allowance is a form of tax relief that allows eligible employers to reduce their annual National Insurance Contributions (NICs) by up to £5,000. Introduced to stimulate employment and business growth, it permits some businesses and charities to claim a deduction from employers' Class 1 National Insurance liabilities each tax year.

It is a relatively little-known tax relief scheme. However, for small businesses, it can be extremely helpful if you plan to expand your workforce or invest more resources into your operations.

Eligible businesses can claim the allowance even if your employer's NIC liability is less than £5,000 a year.

You can claim Employment Allowance dating back to the 2018/19 tax year. However, the rules for claiming the allowance and the amounts you are eligible for have changed during this period. If you would like to make a back-dated claim for Employment Allowance, we recommend contacting JRMA. We can explain the different rules and help you calculate what you are entitled to.

Who is eligible to claim Employment Allowance?

Employment Allowance is not available to every business; it's specifically designed if you pay Class 1 National Insurance contributions on your employees' or directors' earnings. Here are the key eligibility criteria:

• Business structure: Most businesses, charities and community amateur sports clubs, regardless of size, including companies, sole traders, and partnerships, can claim if you pay Class 1 NICs.
• NICs liability: A business must have employer Class 1 NICs liabilities, which were less than £100,000 in the previous tax year.
• Care or support workers: You can also claim if you employ a care or support worker, but you cannot claim for people employed as personal, household or domestic staff.
• State aid limits: Since the Employment Allowance constitutes 'de minimis state aid', i.e. government financial support, it's important that claiming it does not exceed your sector's state aid limit.

Exclusions apply for single-director companies where the director is the sole employee, contractors within the IR35 off-payroll working rules, certain public authorities, and services wholly or partly funded by public money.

Further details about the eligibility can be found on the HMRC website.

Claiming the Employment Allowance

How you claim Employment Allowance will depend on how you run your payroll, e.g. using your payroll software or HMRC's basic PAYE tools.

Claiming through your payroll software

As each payroll software package varies, we advise that you check with your software provider how the claim should be processed.

Claiming using HMRC's basic PAYE tools

If you use HMRC's payroll software, the process you must follow is:

• Choose your organisation's name in the 'Employer' menu on the home page.
• Select 'Change employer details'.
• Then select 'Yes' in the 'Employment Allowance indicator' field.
• When asked, 'Do state aid rules apply?' answer 'yes' only if the de minimis state aid rules apply to your organisation. Then, select the relevant business sectors that apply to you. If the state aid rules do not apply, answer 'no'.
• Send your EPS as usual.

Tips for successfully making your Employment Allowance claim

• Keep up to speed with the state aid rules: Given the relationship between Employment Allowance and state aid rules, keeping abreast of your sector's de minimis state aid threshold is crucial. Overshooting this limit could lead to complications.
• Regular eligibility checks: Business changes, such as the employment structure or the amount of NICs paid, can affect eligibility. Conduct regular checks to ensure you continue to qualify.
• Use digital tools: Many payroll software products offer features designed to simplify the claim process, which can save you time and reduce the likelihood of errors.
• Seek professional advice: Tax legislation can be complex and change frequently. Engaging with an accountant or bookkeeper is sensible to ensure you make an accurate claim.

Conclusion

The Employment Allowance represents a useful tool for businesses and organisations in Bromsgrove and the surrounding area that want to reduce costs and improve cash flow. By understanding the eligibility criteria and the claiming process, you can access this government allowance to your advantage. As always, staying informed and seeking professional advice when necessary can help you maximise the chances of accessing Employment Allowance.

How can JRMA help?

From giving practical advice on how to claim Employment Allowance to handling your payroll and the claims process for you, JRMA is on hand to help local businesses access this government incentive.

Further details about our payroll service can be found here. If you have any questions about Employment Allowance or how our payroll service could benefit your organisation, please contact us at 01905 796512 or email info@jrma.co.uk.