Maximising benefits: A clear guide to the NIC employment allowance for employers
As an employer in the UK, you may qualify for the NIC Employment Allowance, a relief designed to reduce your National Insurance costs. This guide will help you determine eligibility, navigate the claiming process, and understand the impact on your business without delving too far into the complex HMRC guidelines.
Overview:
Understanding the NIC Employment Allowance
In the UK, both employees and employers contribute to National Insurance Contributions (NICs).
These payments fund various government benefits programs, with different classes of contributions for different groups. Employers pay an employer’s national insurance contribution at a rate of 13.8% on earnings above a certain threshold, in addition to the employee’s contribution.
This is where the Employment Allowance steps in. Employers who meet the criteria for this government scheme can benefit from a reduction in their National Insurance liability of up to £5,000 per tax year. This can help them manage their employment costs more effectively.
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Eligibility for Employment Allowance
The Employment Allowance isn’t a one-size-fits-all scheme. Its eligibility hinges on criteria related to business size, type, and total secondary Class 1 National Insurance contributions.
The impact of business size on eligibility
If you’re a sole director company, you might be wondering if you’re eligible for the Employment Allowance. Well, if the director is the only employee earning above the National Insurance Secondary Threshold, the company cannot claim the allowance.
Understanding exclusions
Certain types of organisations and individuals are also excluded from claiming the Employment Allowance. Generally, public authorities are not allowed to claim the allowance unless they hold charitable status.
If you hire domestic staff such as cleaners, gardeners, or nannies for a private household, you cannot claim Employment Allowance. Similarly, payments to employees who are subject to IR35 ‘off-payroll working rules’ cannot be included when claiming Employment Allowance.
Claiming the Employment Allowance: Step-by-step
Claiming the Employment Allowance is a straightforward process, achievable through your payroll software. However, there are certain steps and procedures that you must follow to make a successful claim.
Filing an Employer Payment Summary (EPS)
To claim the Employment Allowance, you must send an Employer Payment Summary (EPS) as well as a Full Payment Submission (FPS) to HMRC. This is done according to your payroll software instructions or HMRC’s Basic PAYE Tools. Remember, the EPS must be sent by the 19th of the following tax month which starts on the 6th of each month for HMRC to apply any reduction on what you owe from the FPS.
Errors are inevitable, but they must be corrected promptly. If you identify a mistake in the EPS, you should send a corrected EPS as soon as possible and report any periods of inactivity up to a year in advance. Also, in case of changes in eligibility, you must indicate this by selecting ‘No’ in the ‘Employment Allowance indicator’ field in the EPS.
When to claim during the tax year
The Employment Allowance can be claimed at any time during the tax year through the RTI submission process. After you submit your claim, you can start using the Employment Allowance right away.
Claiming the Employment Allowance early in the tax year allows you to reduce your National Insurance Contributions sooner and benefit from the allowance throughout the year.
Even if your National Insurance liability is lower than the Employment Allowance, you can still claim it to reduce your NI bill to zero.
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Employment Allowance across multiple payrolls
If your business operates more than one payroll, you may question how the Employment Allowance is applicable. The rule is simple: the allowance can only be claimed against one of those payrolls. And if you control more than one franchise, there’s still only one allowance for all franchises controlled by you.
Regardless of the number of payrolls, the Employment Allowance is applied on a month-by-month basis until the cap is reached within the nominated PAYE scheme.
Therefore, it would be wise to nominate the PAYE scheme with at least £5,000 of expected employer Class 1 NICs liability in the tax year. If the full £5,000 Employment Allowance is not used against the nominated PAYE scheme, you can claim a refund from HMRC for the unused amount, or apply it to future PAYE liabilities.
Backdating your Employment Allowance claims
Are you aware that the Employment Allowance allows for backdating of claims up to four years?
For the tax years 2018 to 2019 and 2019 to 2020, there were no employer’s Class 1 National Insurance liability thresholds or de minimis state aid requirements to backdate claims for Employment Allowance. Also, remember that:
- The Employment Allowance was £3,000 from April 2016 to April 2020
- The Employment Allowance was £4,000 between April 2020 and April 2022
- The Employment Allowance has increased up to £5,000 for the 2023/24 tax year.
Record-keeping and compliance
Maintaining accurate records is essential when you claim the Employment Allowance.
Documenting state aid and de minimis limits
State aid rules play a pivotal role for businesses that make or sell goods or services. These businesses often wonder how much state aid they can receive over three years. De minimis state aid limits also apply to certain sectors like:
- agriculture
- fisheries
- road freight transport
- industrial sectors
These limits could affect their ability to claim the Employment Allowance.
If your business is located in Northern Ireland and you’re involved in making or selling goods or wholesale electricity, de minimis state aid limits are likely to apply, which could impact your ability to claim the Employment Allowance.
In such cases, you must ensure compliance with the requirement of keeping records for a minimum of three years from the end of the tax year to which they relate.
Handling changes in eligibility
If you become ineligible, you must stop claiming the Employment Allowance by selecting ‘No’ in the ‘Employment Allowance indicator’ field when sending the next EPS. When ending the claim for the Employment Allowance before the tax year concludes, you’re required to repay all granted allowances.
Additionally, you must cover any employers’ National Insurance that has been offset. If you reach the £5,000 limit or are no longer eligible, you must promptly update the Employment Allowance indicator in your next EPS and maintain records for accuracy in determining necessary repayments.
Leveraging additional government allowances
The Employment Allowance is not the sole government initiative available. Several other allowances and incentives can be leveraged for business growth and innovation.
R&D tax credits and other incentives
R&D tax credits are a lucrative UK government incentive designed to reward companies that invest in innovation. They offer benefits such as cash payments or Corporation Tax reductions. Regardless of the sector, businesses can benefit from R&D tax credits if they focus on developing new or improved products, processes, or services.
The scope of R&D tax credit qualifications is broad, including projects aimed at resolving scientific or technological uncertainties. The best part? The success of the R&D project is not required for eligibility.
Streamlining claims with accounting automation
Businesses can utilise technology to simplify their claims for different allowances. The UK government provides advice and training to help businesses improve their use of digital tools and technology.
Such support can facilitate the automation of accounting and claim processes, leading to increased efficiency and accuracy. This includes helping businesses with digital technology in areas such as the North West of England. So, why not embrace technology to simplify your claims process?
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Summary
Making an NIC Employment Allowance claim can be a complex process, but the financial benefits it offers to eligible businesses make it a worthy endeavour.
From understanding the basics of the allowance to decoding eligibility, claiming the allowance, handling multiple payrolls, backdating claims, maintaining records, and leveraging additional government allowances, we’ve covered the A-Z of this advantageous scheme.
So, why not take advantage of the Employment Allowance and other government schemes to bolster your business growth? Remember, every penny saved is another step towards your company’s success. Or if you would like our expert accountants at Sleek to help you make your claim, please get in touch with us now.
FAQs
Yes, you can backdate your claim for Employment Allowance for up to four years after the end of the applicable tax year. It’s best to claim as early as possible and contact HMRC for assistance.
Yes, as an employer in the United Kingdom, you must pay Employer’s National Insurance Contributions. It is illegal to deduct this from a worker’s income.
You can claim up to £5,000 from April 2022 onwards if eligible.
No, businesses must meet specific eligibility criteria related to their size, type, and total secondary Class 1 National Insurance contributions to claim the Employment Allowance.
If an employer’s National Insurance liability is less than the maximum allowance, they can’t carry over the unused balance to the next tax year.
Starting from April 6, 2016, limited companies in which the director serves as the sole employee, receiving earnings surpassing the Secondary Threshold for Class 1 National Insurance contributions, are no longer eligible to claim the Employment Allowance.
Yes, limited companies with more than one director can claim the Employment Allowance, subject to the company meeting other eligibility conditions.
