15.1 Introduction
In order to encourage smaller
businesses to start and hopefully flourish, HMRC has introduced several
financial initiatives.
In this module, we will discuss
the Employment Allowance; explain what it is, who can take advantage of it, how
to apply for it, and indeed when to apply for it. We will also reiterate the
National Insurance Contributions (NIC) scheme in place in the UK and what it
means with regards to employees and their wages, and also for employers paying
their employees through Employer National Insurance Contributions
What Exactly is the Employment
Allowance?
Employment Allowance is an
incentive put in place by HMRC for businesses, which can reduce an individual
business' Employer's National Insurance Contributions (NICs).
This is a significant benefit for
a small business, where employment costs can be one of their largest outgoings.
HMRC recognises this and the Employment Allowance is therefore a method of
aiding small businesses and helping them towards success in the future. If you
are eligible for this scheme, as most businesses will be in this category, then
you should claim for it as soon as possible. You can claim Employment Allowance
if you're a business or charity paying Class 1 Employer NICs where liabilities
were less than £100,000 in the previous tax year. You are also eligible if you
employ a care or support worker. The current amount you can claim is detailed
on the UK Government website.
We will look at how to claim the
Employment Allowance in more detail later in this module. However, it is
important to recognise that not every business is eligible, although many are.
It is also worth noting that the amount of money you can claim may rise in
future tax years, in line with the cost of business expenses and the economy in
general. Stay abreast of future developments to ensure you are working with the
correct figures for that particular tax year. How does it work? The allowance
applies to your business, not to individual employees. For example, if the
allowance is £5,000 and your NI bill is £5,500 in total for the tax year,
you’ll only need to pay the £500 excess.
If you are unsure, as may be the
case for a small business, then HMRC has developed some handy online
calculators, to give you a guide on how much National Insurance you pay as an
employer. The information from these calculators is important in helping you
recognise that you are paying the correct amount of National Insurance, if at
all, and that you are claiming any benefits you are eligible for. So, we have
mentioned that most businesses are eligible for the Employment Allowance;
businesses, charities and community amateur sports clubs, who pay class 1
National Insurance contributions against their employee and directors'
earnings, and do payroll submissions to HMRC.
There are a few situations
whereby a business cannot claim the Employment Allowance as per GOV UK
guidelines.
Examples:
-You cannot claim EA if you are a
public body/business, doing over 50% of work in the public sector (unless a
charity)
-Your company employs only one
employee paid above the Class 1 NI secondary threshold.
-The employee is also a company
director.
15.2 How Does the Employment
Allowance Benefit a Business?
The Employment Allowance will
have a much more noticeable effect on a small business than it would on a large
one.
Why?
Because a large business may
not notice a relatively small saving to any major degree, but a small business
certainly would. As we have mentioned before, the Employment Allowance is a
significant saving to a business and if you are eligible then you should be
taking advantage of it.
It is important to know about it
in more detail and to make sure you claim it in the right way. We will look at
how to do that in a little more detail in the later sections of this module.
15.3 Let's Remind Ourselves About
Class 1 National Insurance Contributions (NICs) for Both Employees and
Employers
To refresh your memory on the
issue of employers' National Insurance Contributions, or NIC, this section will
provide as a reminder before continuing on to show you how to apply for and
claim the Employment Allowance.
In terms of employees, as
mentioned previously, anyone aged over 16 years of age who is earning over the
current limit is legally required to pay National Insurance out of their wages.
This is taken by the employer through the PAYE system as a statutory deduction,
and the employer is responsible for making sure this process is carried out;
whether they do the payroll function themselves or outsource it to an
accountant or bookkeeper.
The employee will know how much has been taken, as
this will be communicated to them on their payslip. Some individuals who earn
less are classed as paying NIC in theory, in order to protect their National
Insurance record. We talked previously about how gaps in National Insurance records
can detrimentally affect an individual's entitlement to certain benefits, such
as basic state pension entitlement, contribution-based Job Seeker's Allowance,
maternity pay, and bereavement pay benefits, to name just a few.
A gap in a National Insurance
record can affect how much entitlement a person has, and in some severe cases
can actually mean they are not entitled at all. It is important to avoid gaps
as much as possible because of these reasons.
National Insurance is of course
collected through PAYE and this is referenced using an individual's personal
National Insurance number, which is allocated to everyone at the age of 16. On
top of this consideration, employers are required by law to pay Employer's
National Insurance Contributions. In terms of the Employment Allowance, this is
the area in which you could save, if you are entitled to claim this allowance.
Employers most often pay Class 1 National Insurance and the amount an employer
pays depends on a number of factors, such as how many employees they have, how
old their employees are and whether their employees are members of a
contracted-out pension or not.
If they are members of such a pension scheme,
the employer pays less National Insurance, as does the employee. It is for this
reason that any chances in circumstance should be actioned immediately, to
ensure the correct amount of National Insurance is deducted in good time and
without delay. Saving any money on Employer National Insurance Contributions
(NICs) is quite a considerable saving overall. It is for this reason that
knowing when you are eligible, how to claim and when to claim, is very
important indeed.
In You Claim Employment
Allowance?
If you are eligible to claim the
Employment Allowance on your Class 1 Employer National Insurance Contributions
(NICs), then the good news is that you can claim them at any time of the tax
year - you do not have to wait until the beginning of the year if you realise
you are eligible halfway through it, for example.
If you claim late, i.e. you claim
halfway through or toward the end of the tax year, and you do not use it
against any Class 1 contributions you have paid, you can contact HMRC to ask to
use the unclaimed allowance at the end of the year to pay any tax you owe them,
or indeed National Insurance. Alternatively, you can ask HMRC to give you a
lump sum refund after the end of the tax year, if you have a clear slate and do
not owe HMRC any tax or National Insurance at all.
This is your choice and you
simply need to contact HMRC to discuss which option is best for you. If you
apply at the beginning of the tax year or any other point, and you do use your
Employment Allowance in its entirety, then you will simply continue to claim
this until your allowance runs out. You can log on to the HMRC website and
check your Employment Allowance remaining balance through your dedicated
employer account.
.svg)
