An important Government initiative for businesses in the UK is the Employment Allowance scheme. It’s important you check is if your business is eligible as there are certain restrictions in place.
The Employment Allowance scheme gives qualifying employers and businesses the opportunity to reduce their annual National Insurance contributions.
Chancellor Rachel Reeves announced during last year’s Autumn Budget that the allowance would rise to £10,500 from April, a 50 per cent increase from the original £5,000 threshold.
This change was introduced to align with the changes to National Insurance rates. Each time you process your payroll, you’ll pay less Class 1 National Insurance until you either reach the £10,500 limit or the tax year ends.
The scheme is available to most UK employers including registered charities and those employing care or support workers but there are some restrictions meaning not every employer is eligible.
Your eligibility for Employment Allowance is very much dependent on how your business is categorised.
Public sector employers and businesses run by councils do not qualify for Employment Allowance. However, charities do qualify for the scheme.
Your business is considered a public authority if more than 50 per cent of its work is within the public sector. In that case, you would not be able to claim the allowance.
In addition, your company would be ineligible if all your Class 1 National Insurance contributions in a tax year relate to just one employee, particularly if that employee is a director.
Employment Allowance can only be claimed against a single payroll system. If your company operates multiple payrolls, the scheme will only apply to one should your business be eligible to claim.
The scheme is designed to support businesses with employment costs, aiding their growth, encouraging job creation, and offering financial relief.
By reducing the amount paid in Class 1 National Insurance through payroll, the scheme helps employers manage these costs until they reach the cap or the tax year concludes.
Should your National Insurance liability exceed the £10,500 threshold, your business will need to pay the difference directly to HM Revenue and Customs (HMRC).
For example, if your business’s National Insurance contributions total £12,500, you would be required to pay the additional £2,000 to HMRC.
It’s worth remembering the Employment Allowance is allocated per business not per employee and can only be applied to one payroll system.
The rise in the Employment Allowance was introduced to help offset the impact of the concurrent increases in National Insurance contributions.
Alongside increasing the limit, the Government also removed the previous restriction that prevented larger employers from claiming. These changes were introduced as part of the Autumn Budget 2024 and reflect a broader effort to support businesses.
If you’re launching a new business, it’s important to understand Employment Allowance and check if you could be eligible for the scheme.
If you’re unsure about whether your business qualifies for the Employment Allowance, the best course of action is to seek advice from finance or tax professionals.
These experts can guide you through the details of the scheme, confirm whether your business is eligible, and explain how to begin the claim process.
Speak to our team of experts today to find out if your business can benefit from the Employment Allowance scheme.
