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For small businesses, one of the most welcome announcements from this year’s Spring Statement was the increase to the Employment Allowance. Chancellor Rishi Sunak raised the allowance from £4,000 to £5,000.
£1k tax cut
The increase announced in the Spring Statement is effectively a £1,000 tax cut for eligible businesses. From 6 April 2022, smaller firms have been able to claim up to £5,000 off their employer national insurance contributions (NICs) bills.
Third time lucky
This is the third time the government has increased the Employment Allowance since its introduction in 2014. It says that firms will now be able to employ four full-time workers on the National Living Wage without paying employer NICs at all.
According to the government, 94% of businesses benefitting from the £1,000 increase are small and micro businesses.
Who is eligible?
Businesses and charities can claim the Employment Allowance if their employers’ Class 1 NIC liabilities were less than £100,000 in the previous tax year.
It is possible to claim Employment Allowance for the previous four tax years dating back to the 2018 to 2019 tax year. Please note that some of the rules for claiming are different in previous tax years, so even if your business does not meet the current criteria, a claim may be possible for an earlier year.
When to claim
The Employment Allowance should be claimed every tax year. It can be claimed at any time in the tax year, but the earlier the allowance is claimed, the quicker it will be received.
Those businesses that have failed to claim the Employment Allowance against their employers’ Class 1 NIC liabilities during the year have two options. They can ask for the unclaimed allowance at the end of the year to be offset against any tax or NIC liabilities, including VAT or corporation tax if there is no outstanding PAYE, or if they do not owe any tax they can claim a refund.
The Employment Allowance can be claimed through payroll software or HMRC’s PAYE tools.
Please contact us to discuss the Employment Allowance or any other tax and payroll matters.