We’re getting lots of questions about the Employment Allowance, as HMRC are writing to employers to confirm their eligibility. But these letters are really confusing people as they talk about de minimus state aid, so it’s time to translate!
So what is the Employment Allowance?
- Small UK businesses are entitled to this amount which is currently £5,000 for the 2022/2023 tax year (£4,000 for 2021/2022)
- This allowance reduces your employer Class 1 National Insurance Contributions (NIC).
- Class 1 NIC amounts due do not need to be paid, until the allowance is used up.
See below for a definition of Class 1 NIC.
Why am I getting the Employment Allowance letter?
You’re getting this employment allowance letter as we claimed the employment allowance when we processed your payroll, or you’ve claimed if you process your own payroll.
Last year HMRC started to notify employers by letter that their claim for employment allowance had been successful.
The letter also mentions that the employment allowance counts towards your de minimis state aid threshold, and this is what has really thrown people.
What is de minimis state aid?
The definition is very broad, but can include state grants, subsidies and other government funded initiatives.
The de minimis threshold is €200,000 over 3 consecutive years.
Examples of funding included as state aid are:
- water environment grant
- basic payment scheme
- countryside stewardship
Most COVID grants are not included in the de minimis threshold.
Who can claim Employment Allowance?
- Business or charities with one or more employee.
- Employers with Class 1 NIC less than £100k in the previous tax year.
- Sole directors with at least one employee earning above the NIC threshold.
- Group companies must have Class 1 NIC of less than £100k for the group, and only one company can apply.
- Business owners with more than one partnership can claim for each business.
Who can’t claim Employment Allowance?
- Sole directors with no other employees cannot claim the Employment Allowance.
- Businesses or groups with employers’ Class 1 NIC of more than £100k in the previous tax year.
What are Class 1 National Insurance Contributions?
- This is the employers’ national insurance contribution, calculated on your employees’ gross wage.
- It’s currently calculated at 13.8% of the gross pay for each pay period (eg weekly or monthly) above the NIC threshold (£8,840 for 2021/22).
- This is different to employees’ NIC which is 12% of their gross pay, but deducted from their gross pay, before you pay them.
- Class 1 NIC is one of the reasons we advise on a low salary if you’re a director, as you will be paying the 12% as an employee, and the 13.8% as an employer!
How to claim:
- You should claim through your PAYE software, and this does not happen automatically, so make sure you tick the right box!
- If your software doesn’t let you claim, you can use HMRC Basic PAYE Tools to claim
- You can go back 4 years to make a claim!
Check your eligibility:
- We’ve recently claimed over £10,000 for a client, whose previous accountant said they couldn’t claim!
- So double check your eligibility, and make sure you have claimed properly.
- The full HMRC guidance around employment allowance can be viewed here.
The above information was correct at the time of publication: 10/6/2022
This is generic guidance, so we advise you to contact your accountant or us, for more advice, tailored to your specific situation, or you can get in touch with us here.