Employment Allowance gives SMEs £1,000 boost

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, which the government says will benefit around 495,000 businesses, or almost a third of all UK firms. We look at the Employment Allowance, who is eligible and how to claim.

£1k tax cut

The increase announced at Spring Statement is effectively a £1,000 tax cut for eligible businesses. It means that from 6 April 2022 smaller firms will be able to claim up to £5,000 off their employer national insurance contributions (NICs) bills.

According to the government, this measure will take the total number of firms not paying NICs or the Health and Social Care Levy to 670,000.

Advocacy group Small Business Britain welcomed the Chancellor’s announcement. It says the move will play a role in helping small businesses with employees deal with the significant cost-of-living challenges they are currently facing.

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. The sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector; the professional, scientific and technical activities industry; and the construction sector.

Hero ask

The Federation of Small Businesses (FSB) has campaigned for the increase to the Employment Allowance.

Responding to the Spring Statement, Martin McTague, National Chair of the FSB, said: ‘The increase in the Employment Allowance helps small firms do what they do best, creating and sustaining jobs.

‘This was FSB’s ‘hero ask’ at the Spring Statement, and we have hugely valued the time taken by Treasury officials to work with us on the positive impact this will have not just on work opportunities, but also training and investment.’

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 NI 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. If they do not owe any tax they can claim a refund.

How to claim

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.