Will my business qualify for the new £5k per annum employment allowance?

March 7, 2022|In KRW Q&A|By Keith Witchell

Against the backdrop of the 1.25% increase in the rate of Employers NIC from April 2022, Rishi Sunak announced a welcome increase in the Employment allowance from £4k to £5k per annum.

So what is the Employment Allowance?  First introduced in 2014, the Employment Allowance reduces the amount of Employers’ NIC that eligible businesses have to pay on their staff salaries by a fixed amount per annum.

How much is it?  Originally introduced at a level of £2,000 per annum, the Employment Allowance has increased over recent years, and last week the Chancellor announced a further increase from £4,000 to £5,000 per annum from April 2022.

How does it actually work?  When your salaries are processed through the payroll the Employers NIC on the salaries you pay your staff (and yourself) is calculated and this is normally payable to HMRC each month as part of your overall PAYE/NIC liability.  However, the Employment Allowance removes the Employers NIC liability for each month until it is fully utilised.  For some employers with just one or two staff this could then be used over several months, whereas larger employers might fully utilise it in April.  But providing the Employment Allowance box is ticked on your payroll software, then this is calculated automatically.

Which businesses qualify for the Employment Allowance?  If you are a business or a charity (which includes community amateur sports clubs) and your Employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, then you will qualify for it.  You can also claim if you employ a care or support worker.  However sole Director companies with no other employees cannot claim the allowance (see below).

What about groups of companies?  If you’re part of a group then you will only qualify if the total Employers’ NIC liability of the whole group is under £100,000, and even then only one company in the group can claim it.

Why can’t sole Director companies claim the Employment Allowance?  The rules state that if there is only one employee on your payroll, and that person is also a Director, then that business will not qualify for the Employment Allowance.  However, a sole Director that also pays another person a salary at least equal to the Class 1 NIC secondary threshold of £9,100 per annum (from April 2022) will qualify for the Employment Allowance.

Are there any other exclusions?  Yes, if you employ someone for personal, household or domestic work then the Employment Allowance cannot be used against the Employers’ NIC on their salaries.

For further advice on this please don’t hesitate to contact me.

Key Facts

  • Employment Allowance increased from £4k to £5k pa from April 2022
  • It covers part of your Employers NIC liability for the year
  • You’ll qualify if your Employers NIC bill last year was less than £100k
  • However, for groups that limit applies to the group as a whole
  • Sole Directors with no other employees on the payroll do not qualify for it

For further advice on this matter, please contact me.

Keith Witchell