Boosting business profitability with the Employment Allowance

The Employment Allowance is now in its fifth year and without doubt has been a welcome tax-saving opportunity to businesses of all sizes. However, some businesses are not claiming this allowance and overpaying on national insurance as a result.

Following its increase from £2,000 to £3,000 in April 2016, SMEs can now see a significant benefit. However, with the ever changing payroll regulations it can be difficult to monitor the legislation, especially when responsibilities cover other areas of the business, resulting in missed opportunities.

The benefits of Employment Allowance

If you employ at least one person, you could reduce your Employer’s National Insurance liability by up to £3,000 per year with the Employment Allowance. As an employer you must pay Employer’s Class 1 National Insurance on earnings over £702 per month or £162 per week (2018/19) every time you run payroll. With the Employment Allowance, you can offset the initial £3,000 of Employer’s National Insurance each year, reducing your Class 1 National Insurance liability. 

Who is eligible for the Employment Allowance?

Specific criteria must be met to be eligible and the following must be considered:

• You must be a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance.
• If you have more than one employer PAYE reference within a business or group of companies, you can only claim Employment Allowance against one of them.

You cannot claim if any of the following apply:

• You are a director and the only employee is paid above the secondary earnings threshold of £702 per month or £162 per week (2018/19).
• You employ someone for personal, household or domestic work, excluding care or support workers.
• You are a public body or business doing more than 50% of work in the public sector, unless you are a charity.
• You are a service company working under IR35 rules.

Claiming relief

Businesses of all sizes across Hampshire, Dorset and Wiltshire are making the most of the Employment Allowance scheme and boosting profitability. The allowance itself is ‘claimed’ via your payroll software using an Employer Payment Summary (EPS), which is submitted under RTI rules. Our payroll specialists can determine whether or not your company is eligible.

We offer a fully managed payroll function that ensures you are informed of these incentives and can focus on what you do best – running your business.

For further information on the Employment Allowance or for a no-obligation discussion on outsourcing your payroll with us, contact James Alesbury on 023 8046 1222 or email james.alesbury@hwb-accountants.com.