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Employment Allowance – how to get it

9 May 2016, Companies, Employer, Creative Industries

The employment allowance enables most employers to claim a £3,000 deduction against National Insurance Contributions.

Who is eligible for Employment Allowance?

Businesses and charities who employ people are subject to Employer’s Class 1 National Insurance Contributions (NIC).  If you pay any employees more than the Secondary Threshold you have to pay NIC at the rate of  13.8% to HMRC and report the information as part of your Real Time Information (RTI).

These businesses and charities can claim up to £3,000 of employment allowance to reduce their NIC.

Employment Allowance and Single Director Companies

If the only paid employee of a company is also a director, then the employment allowance can’t be claimed.  In this case you must make sure that your payroll software is adjusted to deselect any option to claim the employment allowance.  You will need to send an additional Employment Payment Summary (EPS) after changing this setting in your software so that HMRC knows that you are no longer claiming the Employment Allowance if you have previously claimed it.

National Insurance – Secondary Threshold 2016/17

Additional employees

If a single director company hires an additional employee, National Insurance contributions are payable once the salary for that employee exceeds the Secondary Threshold.  If additional employees are also directors, they must be paid more than the annual threshold (£8,112 in 2016/17) for the employment allowance to be claimed.  If your other employees are not directors, you follow the threshold for their pay frequency – e.g. an employee on monthly wages need to be paid £676 for the employment allowance to be claimed.

If you qualify for the employment allowance at any point in the year, it can be claimed for the full year.

General Exclusions

  • Sole director / employee (see above)
  • Personal  / household / domestic worker (eg nanny / cleaner / gardener)
  • Public body / commercial business performing majority of services for the public sector
  • Service company with only deemed payments of income (IR 35)
  • Where another group company already claims employment allowance

Auto Enrolment Pensions

If you are considering hiring additional staff, you will need to have a pension scheme in place that complies with Automatic Enrolment regulations.  For advice on setting up a payroll scheme and complying with your pension responsibilities, please get in touch with Alterledger using the form a the bottom of this page.

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