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How the Employment Allowance Can Help Your Business Cut Costs

Updated: Jul 21

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If you're a business owner looking to cut costs, taking advantage of the Employment Allowance can help reduce your annual National Insurance liability by up to £5,000.



Who Can Claim the Employer Allowance?


Any employer who pays Class 1 National Insurance can claim the allowance, provided they are not a public body or a business that does more than half of its work in the public sector, unless they are a charity. However, companies with only one employee paid above the Class 1 National Insurance secondary threshold, where that employee is also a director, are not eligible.



How Does It Work?


If you're eligible, you will pay less employers' Class 1 National Insurance each time you run your payroll until the £5,000 allowance is used up or the tax year ends, whichever comes first.



Important Considerations


Certain employees cannot be included in your claim, such as those within IR35 'off-payroll working rules' and those employed for personal, household, or domestic work (unless they are care or support workers). Additionally, connected companies must ensure the total de minimis state aid for all companies in the group is below the sector-specific state aid limit. Rules vary if your business covers multiple sectors.


To determine eligibility, calculate the total de minimis state aid received. If below the sector limit, you can make a claim, but remember, the claim cannot exceed £5,000 per tax year.



Conclusion

The Employment Allowance is a valuable tool for eligible employers to save on National Insurance liability. Understanding the rules and restrictions is crucial, and consulting with a tax professional may be necessary to navigate the process effectively.



 

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