Is your limited company eligible for the Employment Allowance?

Changes implemented to the Employment Allowance from the 6^th April means eligible businesses in the UK can reduce their annual National Insurance (NI) bill by up to £4,000 for the 2020/21 tax year.

Our short blog will explore how the Employment Allowance works and how your company could benefit from it.

What is the Employment Allowance?

The Employment Allowance scheme was first introduced in April 2014 and allows eligible employers to reduce their Employers’ NI bill.

Any company who employs staff (including directors) must pay Class 1 Employers’ NI at 13.8% on salaries above the secondary threshold of £8,788 (2020/21 tax year).

Eligible businesses can reduce their annual NI liability by up to the £4,000 limit every tax year as long as your employees earn salaries above the £8,788 threshold.

The allowance is claimed via the payroll process and will reduce each time you run your payroll until the £4,000 is gone or the tax year ends (whichever is sooner). Please be aware the allowance is per business, not per employee.

You will only pay Employers’ NICs once the £4,000 allowance has been used.

Smaller businesses can now benefit from the Employment Allowance

Changes to the Employment Allowance implemented on the 6^th April 2020 mean the allowance is now only available to smaller businesses who had an Employers’ NI bill of £100,000 or less in the previous tax year.

Are there any restrictions that apply to the Employment Allowance?

Existing restrictions to the legislation are still in effect, and if any of the following apply you will not be eligible for the Employment Allowance:

• You’re a company with only one employee paid above the Class 1 National Insurance secondary threshold.
• The employee is also the director of the company.
• If your business is a public sector body or at least 50% of the work completed is in the public sector, you will not be eligible for the allowance (unless you are a charity).

Certain employees cannot be included in a claim and these include:

• Someone whose role and earnings are within IR35 off-payroll working rules.
• Someone who is employed for household, personal or domestic work (e.g. a gardener or nanny)- unless they are a support or care worker.

The Employment Allowance is classified as de minimis state aid

As part of the changes introduced in April 2020, the Employment Allowance will operate as de minimis state aid. The Employment Allowance will contribute to the total aid you are allowed to receive under the relevant ceiling and will be subject to de minis state aid rules.

How to make a claim 

A claim can be made at any time during the tax year, but the earlier you make a claim, the sooner you’ll benefit from the allowance.

How you make a claim depends on whether you use your own payroll software or HMRC’s Basic PAYE tools – further information about both processes can be found on the government’s website.

If you are a client of Churchill Knight & Associates and think you could benefit from the allowance, please speak to your Account Manager who will be able to confirm whether your company is eligible or not.

Always use a knowledgeable accountancy provider

A knowledgeable accountancy provider such as Churchill Knight & Associates will stay up to date with the latest legislative developments that affect contractors and freelancers in the UK and can advise you on the specific tax relief your company can benefit from.

For more information about our accountancy service or to discuss the benefits of contracting through your own limited company – request a call for a time that suits you, and one of our consultants will be in touch.