Today, it is crucial that limited companies take advantage of every opportunity to save and reduce their national insurance contributions. One of these valuable opportunities is the Employment Allowance. In this blog, we'll clear up the most common questions about this government subsidy, including what it is, who qualifies and how to claim it in the 2024/25 tax year.
What is Employment Allowance?
The Employment Allowance is a tax incentive offered by the government that allows qualifying employers to reduce their secondary Class 1 National Insurance liability by up to £5,000 per year. This allowance was specially created to support small businesses by providing significant savings whenever they process payroll. The £5,000 limit is applied per company, not per employee.
But what is Employers' National Insurance?
National Insurance is a compulsory contribution paid to HMRC based on employees' earnings, comprising two payments:
Employer: Pays Class 1 (secondary) National Insurance on employee earnings above the Secondary Threshold, currently £9,100 per tax year, with a rate of 13.8 per cent for the next tax year.
Employee: Pays Class 1 National Insurance (primary) if under state pension age and earning above the Primary Threshold, currently £12,570 per tax year, with a rate of 8% for the next tax year.
Who Can Claim the Employment Allowance?
To qualify for Employment Allowance, your company must:
Be registered as an employer with HMRC.
Be a company or charity with employees.
Have a Class 1 National Insurance liability of less than £100,000 in the previous tax year.
Have two or more directors on the payroll (payrolls with only one director do not qualify).
Public bodies and companies that carry out more than 50 per cent of their work in the public sector cannot claim, unless they are charities.
How to Claim Employment Allowance?
Claiming Employment Allowance is not automatic. You can claim at any time during the tax year via your payroll software. Make sure you send the Employment Payment Summary (EPS) to HMRC as part of the standard payroll process.
Didn't Claim in Previous Years?
You can still claim retroactively for up to four previous years. For example, to claim Employment Allowance for the 2022/23 tax year, you must claim by 5 April 2027. Use HMRC's Basic Tools software to make this process easier.
Specialised Advice
For more information on how to make the most of the Employment Allowance 2024/25 and how to claim it, please contact us. At Zion Accountants, we are committed to helping small businesses reduce their National Insurance contributions and optimise their financial health.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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