£18,000 tax refund for a small business

Understanding the Employment Allowance in the UK The Employment Allowance is a valuable relief for eligible employers in the UK, allowing them to reduce their annual National Insurance (NI) liability. This initiative is designed to support businesses and charities by lowering their employment costs, thereby encouraging growth and sustainability. What You’ll Get Eligible employers can reduce their employers’ Class 1 National Insurance each time they run payroll until the limit is reached or the tax year ends, whichever comes first. The allowance was £4,000 until the end of the 2021/2022 tax year and increased to £5,000 from the 2022/2023 tax year onwards. Eligibility Criteria To qualify for the Employment Allowance, you must meet the following criteria: Annual NI Liabilities: Your employers’ Class 1 National Insurance liabilities must have been less than £100,000 in the previous tax year. These criteria weren’t applicable before FY 2021-2022. Type of Employer: You can be a business, charity, or community amateur sports club. Employers of care or support workers are also eligible. Group Companies: If you’re part of a group of companies or charities, the total liabilities must be less than £100,000, and only one company in the group can claim the allowance. How to Claim Claims can be made using payroll software or through HMRC’s Basic PAYE Tools. You can claim for the current tax year and the previous four tax years. Ineligibilities Certain employers are not eligible for the Employment Allowance: Single Director Companies: If you’re the only employee paid above the Class 1 National Insurance secondary threshold. Public Bodies: This includes local, district, town, and parish councils. High NI Liabilities: Employers with Class 1 National Insurance liabilities of £100,000 or more in the previous tax year. Deemed Payments: Payments to off-payroll workers (e.g., contractors) do not count towards the £100,000 threshold and are not eligible for the allowance. State Aid Limits: For businesses in Northern Ireland, Employment Allowance counts as ‘de minimis state aid,’ and there are limits on how much state aid these businesses can receive over three years. Case Study: Saving a Business £18,000 in National Insurance Contributions Background: A small manufacturing company, “Tech Innovators Ltd,”* employs 8 staff members. Over the past four years, their annual employers’ Class 1 National Insurance liabilities have averaged around £29,000. Challenge: Despite being eligible for the Employment Allowance, Tech Innovators Ltd had not claimed the allowance for the past four years due to a lack of awareness about the scheme. Solution: Upon learning about the Employment Allowance, the company decided to claim for the current tax year and the previous four tax years. They used HMRC’s Basic PAYE Tools to submit their claims. Outcome: Tech Innovators Ltd successfully claimed the Employment Allowance for four years, resulting in a total saving of £18,000. This includes £4,000 for each of the first two years and £5,000 for each of the last two years. This was an unexpected win for the company.   *Name of the business withheld.