Am I eligible for the Employment Allowance and Small Employers’ Relief?

The Employment Allowance and Small Employers’ Relief are examples of two schemes which were introduced to encourage small businesses to recruit staff, and to support them when employees are unavoidably out of the business, such as on maternity, paternity, adoption, or shared parental leave.

The Employment Allowance

What is the Employment Allowance?

The Employment Allowance was first introduced in 2014 with the intention of supporting the growth of businesses and charities by cutting the cost of employment.  When initially introduced, the Employment Allowance offered small employers a reduction in their National Insurance liability of £2,000 per year; by 2020/21, this amount had increased to £4,000 per year for eligible businesses. 

Is my business eligible?

The eligibility criteria for the Employment Allowance is straightforward: any business or charity employing staff can claim National Insurance relief if their Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.  Based on this criteria, most small businesses will be able to claim the full employment allowance entitlement of £4,000 per year. 

The only exemptions to the eligibility criteria are where the employee is employed for domestic duties, the sole director is the only employee paid above the secondary earnings threshold, the business is a public body (or does more than half its work in the public sector), or the employee’s only income is deemed to fall under IR35 rules.  Freelancers, contractors, and the self-employed are not eligible for the Employment Allowance.

How Do I Claim the Employment Allowance?

The Employment Allowance can be claimed via payroll software or through HMRC’s Basic PAYE Tools.  Employment Allowance is typically claimed via the payroll process as the liability arises, although an employer can make a late claim by either using any unclaimed allowance at the end of the year to pay any tax or National Insurance owed (including VAT or Corporation Tax), or by requesting a refund from HMRC.  Unclaimed Employment Allowance can be claimed for the previous 4 tax years.

Small Employers’ Relief

All employers can usually claim 92% of statutory payments back from HMRC.  However, Small Employers’ Relief allows eligible companies to reclaim 103% of any statutory maternity (SMP), paternity (SPP), adoption (SAP), parental bereavement, or shared parental (SHPP) pay.  Statutory Sick Pay (SSP) is not covered by Small Employers’ Relief.

To qualify for Small Employers’ Relief, the combined total of the company’s employer and employee National Insurance contributions must be £45,000 or less in the last complete tax year prior to the employee’s qualifying week (or in the case of adoption, the matching week).  In calculating the total National Insurance contributions, any reductions (such as the Employment Allowance) must be ignored.  

Claims for Small Employers’ Relief can be calculated via payroll software and communicated to HMRC in an Employer Payment Summary (EPS) as part of the standard payroll process.  If payments cannot be offset against the current year’s liabilities, the employer can write to HMRC to ask for a repayment, although this cannot be done until the start of the next tax year.

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