It is important nowadays that limited companies are taking every opportunity for savings and reducing national insurance contributions. One such opportunity comes with Employment Allowance.
In this blog, we will answer our most frequently asked questions when it comes to Employment Allowance – from what it is and who qualifies to how it can be claimed in 2024/25.
Employment Allowance is a government initiative that allows eligible employers to reduce their Class 1 secondary National Insurance liability by up to £5,000. It is designed to support smaller businesses, allowing them to pay less employer’s Class 1 National Insurance each time they run a payroll until the full £5,000 allowance is spent or the tax year ends – whichever comes first.
The £5,000 Employment Allowance is per business, not per employee, and can only be claimed against one payroll if your business has multiple payrolls.
When an employer’s Class 1 national insurance liability exceeds the £5,000 allowance limit, any excess will need to be paid by the business to HMRC.
National Insurance (NI) is the amount of money owed to HMRC depending on how much each employee earns, and it is made up of two payments: one from the employee and one from the employer.
An employer pays Class 1 (secondary) National Insurance on the employee’s earnings if they are above the Secondary Threshold, currently £9,100 per tax year. For the upcoming tax year, the rate is 13.8%
An employee pays Class 1 (primary) National Insurance if they are under the State Pension age and earn above the Primary Threshold, currently £12,570 per tax year. For the upcoming tax year, the rate is 8%
To be eligible for Employment Allowance, you must be:
Public bodies and businesses doing more than 50% of their work in their public sector cannot claim (unless they are a charity).
It is not automatic! You can claim Employment Allowance at any point during the tax year through your payroll software. The submission you make to HMRC is the Employment Payment Summary (EPS) which is part of your standard payroll process.
The claiming process will differ depending on which payroll software you are using. For example, on Xero payroll, it can be found within the payroll settings where you have to tick a box to say you want to claim the allowance. That is in the HMRC section of the settings.
Once you have told your respective software you qualify and want to claim the allowance, HMRC will be informed on the next EPS that is sent to them.
Please note, the allowance is allocated to the tax year as a whole, irrelevant of when you make the claim. For example, if you make the claim in month 12, HMRC will back date it to the beginning of the year. If your employer’s national insurance liability is £100 a month and you were to claim Employers Allowance in month 12, they would apply the claim for the whole tax year. That means they would show a credit of £1,200 on their system for the tax year, not just the £100
It’s not too late! However, you can only backdate your claim as far as four years.
For example, if you wanted to make an Employment Allowance claim for the tax year 2022 to 2023 (the tax year ending on April 5, 2023), you would need to make your claim no later than April 5, 2027.
To make a claim, you will need a separate EPS for each year you claim for when making any claims for ended tax years. A lot of software won’t allow this. If you need to make a claim for earlier years, we recommend HMRC’s Basic Tools software.
If you’d like to learn more about the Employment Allowance 2024/25 and how to claim it, get in touch with our expert Exeter accountants today. We are experienced in helping smaller limited companies and other clients limit their national contributions to save money.
Michael Broome FMAAT ATT
Email: michael@sidaways.co.uk
Tel: 01392 360008
Sidaways Limited – Chartered Accountants in Exeter
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Dan Routcliffe
Email: dan@sidaways.co.uk
Tel: 01392 360008
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