The Employers Allowance is amongst a limited number of HMRC freebies, such as the office Christmas party allowance or CPA (the CPA is an annual one-off allowance of up to £150 per head to spend per member of staff, including their partners, at the annual do).
The Employment Allowance allows eligible businesses to claim up to £4,000 every tax year, to reduce their Class1 employers National Insurance bill and was originally introduced to help employers take on new staff, but it is changing.
Employer’s Allowance: What’s different this year?
From 6th April 2020, there are four key changes to the Employment Allowance:
- For the 2020/21 tax year, the Employment Allowance is increasing to £4,000, up from £3,000 in the 2019/20 tax year
- It will only apply to smaller businesses, which means that only businesses with an Employer NI bill of £100,000 or less in the previous tax year will be eligible to claim the allowance
- In the tax years before 2020-21 the Employment Allowance claim auto-renewed, as in the employer did not have to make separate claims every tax year. However, in the current year the method of claiming through the Employer Payment Summary remains the same but the employer will have to make a new claim for the Employment Allowance to HMRC each and every tax year
- You can’t claim the Employment Allowance if you carry out more than 50% of your work in or for the public sector unless you supply IT services or cleaning services for a government or local council
Are micro-businesses entitled to Employer’s Allowance?
Yes, and the business can have as little as one employee (who is not also a director) and still be eligible. So, a business with a single employee earning up to £41,486 per annum will have the whole of their £4,000 NI bill paid for by the government.
At MJ&Co we have a large number of micro-businesses, typically IT specialists or skilled tradesmen such as electricians, plumbers and the like, operating as one-man-bands or limited companies. Many of them would love to take on an employee or two, but are put off by Class1 NI, which amounts to an additional tax on employers of 13.8%.
The revised 2010/21 scheme has not only increased the allowance by 25% but has also made it simpler for the non-sophisticated business to claim. In my opinion, this could well make the difference to many micro-businesses thinking of taking someone on or not.
How do you claim the Employer’s Allowance?
Providing your business is eligible and assuming you use one of the many payroll software packages available, the Allowance will be automatically subtracted from your Employer NI liability by your software.
Alternatively, give our Payroll Manager Lucy Evans a call 01743 271071 and she will be happy to do for a very modest charge.
Can you claim Employer’s Allowance if you’re not a business?
Unfair as it sounds, no is the answer. Unfortunately, this is yet another government policy that overlooks those many individuals who employ personal assistants, full-time carers, gardeners, cleaners, nannies etcetera.
They are not eligible for the Employment Allowance, even though they operate a payroll scheme, simply because they’re not a proper business.
Personally, I consider that as the scheme was originally brought in with the principal aim of encouraging employment, to exclude these individuals is grossly unfair and against the spirit of the Allowance.
For further guidance from HMRC’s website go to https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance and if you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.