Employment allowance – what’s that all about then? Simply put, it’s a tax break for small employers like you.
If you’re an employer and pay anyone more than c. £5K a year, then you’ll need to pay “Employer’s NIC” on their salary, at a rate of 15%. That can rack up pretty quickly – for an employee earning £30K a year, then on top of their normal salary, you’ll also need to fork out around £3,750 on top for the Employer’s NIC. OUCH! 😯
This is not deducted from the employee (they of course pay their own taxes/national insurance), it’s an additional cost to your business. Sorry about that.
But there is good news! Most businesses are entitled to relief for their first £10,500 of employer’s NIC, per tax year. This comes right off your PAYE bill each month, until it’s all used up. 🙌
Every business is different, but in general, those with 3 or fewer employees probably won’t pay any Employer’s NIC.
It’s not automatic!
That’s right. You have to apply for it each year through your payroll software. It isn’t automatic (some businesses aren’t entitled to it). Every April, before you submit your payroll, you need to advise HMRC that you’re entitled to this relief (see below).
We often see problems with clients who handle their own payroll – some just assumed they were getting it automatically, whilst others thought that last year’s claim would roll forward. Sadly, neither is true, and in both cases you’ve basically set fire to “ten large” as nobody outside American TV shows ever says 🔥
If your accountant runs your payroll for you, sit back and relax, they’ll make sure it’s all done on time. But if you’re still managing everything yourself (why why why??…. get an accountant to do it, from just £25 per month, it’s a bargain!) then make sure you claim this every April.
If you’re reading this and the penny has just dropped that you’re missing out on the Employment Allowance, or forgot to claim it last year, get in touch ASAP – there are strict time limits but it may be possible to make a retrospective claim.
Some Exceptions
What did you expect? A simple allowance for everyone across the board? I’m afraid not; there are some businesses which don’t qualify for the relief, so be careful not to claim twice and end up with a pasting from HMRC. Again, if we’re handling the payroll for you, we’ll sort all this for you so no mistakes. The main groups affected are:
Firstly, if you are the only person on the payroll AND you’re also a director, then it’s likely that you won’t qualify for this.
Next, if you’re not a business (for example if you’re hiring domestic help / nanny / cleaner etc) then it doesn’t apply.
And finally, if your company is part of a group and/or has more than one payroll scheme in place, you can usually only claim it for ONE of your payroll schemes.
THE COST OF GETTING THIS RIGHT
Running a payroll isn’t something you should be doing. Your time is better spent earning money and building your business, rather than sitting in the office working out if you’ve got the payroll right, and if your staff are going to be turning up for work on Monday.
And if you save a few hundred quid a year running your payroll…but forget to claim thousands in tax relief…well…
Get a professional involved. Give me a call and we can take away the hassle for you.
