What is the Employment Allowance and How Can It Benefit Your Business?

Running a business involves numerous financial responsibilities, one of which is paying your employees’ National Insurance contributions (NICs). For many small businesses and charities, the Employment Allowance offers a valuable opportunity to reduce this financial burden.

In this blog, we’ll explain what the Employment Allowance is, who is eligible, and how it can benefit your business.

What is the Employment Allowance?

The Employment Allowance allows eligible businesses and charities to reduce their Employer Class 1 National Insurance contributions (NICs) by up to £5,000 per tax year. This can provide significant savings, helping to reduce your business’s payroll costs and freeing up funds that can be reinvested elsewhere.

For the 2024/2025 tax year, the Employment Allowance remains at £5,000. This means that if you qualify, you can reduce your NICs bill by up to this amount over the course of the year.

Who is Eligible for Employment Allowance in 2024/2025?

To claim Employment Allowance in the 2024/2025 tax year, your business must meet specific criteria. You may be eligible if:

1. Your Class 1 NICs liability was less than £100,000 in the previous tax year (2023/2024). If your total employer NICs bill for the 2023/2024 tax year was below this threshold, you can claim the allowance.
2. You are a business or charity (including community amateur sports clubs) paying Employer Class 1 NICs.
3. You only employ personal care staff (such as a nanny, nurse, or carer) if they support someone due to age, illness, or disability.

Who Cannot Claim Employment Allowance?

While many businesses can benefit from the Employment Allowance, there are exceptions. You cannot claim if:

• You are a company with a sole director and no other employees.
• Your Class 1 NICs liability exceeded £100,000 in the previous tax year.
• You are working in the public sector (unless you are a charity), or you provide services mainly to the public sector.
• You employ someone for personal, domestic work, such as a cleaner or gardener, unless they provide personal care services as described earlier.

How to Claim Employment Allowance in 2024/2025

Claiming Employment Allowance is straightforward and can be done through your payroll software or by using HMRC’s Basic PAYE Tools.

Here’s how to claim:

1. Check your eligibility: Ensure that your business or charity meets the criteria for claiming Employment Allowance.
2. Use payroll software: Most payroll software will allow you to claim Employment Allowance automatically when you submit your Employment Payment Summary (EPS) to HMRC. You’ll need to indicate that you’re eligible for the allowance.
3. Claim via HMRC Basic PAYE Tools: If you don’t use payroll software, you can still claim through HMRC’s free Basic PAYE Tools. Simply select ‘Yes’ in the ‘Employment Allowance Indicator’ field when submitting your EPS.

Once you claim the Employment Allowance, HMRC will automatically reduce your NICs liability until the £5,000 cap is reached for the 2024/2025 tax year.

Keeping Compliant: Employment Allowance and State Aid

It’s important to note that Employment Allowance is considered a form of State Aid. This means that the total amount of State Aid your business receives cannot exceed the maximum threshold set by the European Union and the UK government, depending on your sector. For most sectors, this threshold is £200,000 over a three-year period.

From April 2024, businesses will need to keep track of any State Aid they receive and report it when claiming Employment Allowance to remain compliant.

What Happens if You Exceed the £100,000 Threshold?

If your business’s Employer Class 1 NICs liability exceeded £100,000 in the 2023/2024 tax year, you won’t be eligible for the Employment Allowance in 2024/2025. However, if you drop below this threshold in the next tax year, you may be able to claim again in the future.

Conclusion

The Employment Allowance provides a valuable opportunity for small businesses and charities to reduce their NICs liability and ease the financial burden of employing staff. With up to £5,000 available in savings for the 2024/2025 tax year, it’s worth checking if your business qualifies.

If you’re unsure about your eligibility or need assistance with claiming the Employment Allowance, Helpbox is here to support you. Our expert team can help you navigate the process, ensuring you maximise the benefits available to your business. Get in touch with us today to see how we can assist you in managing your payroll and tax responsibilities.