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Employment Allowance Advice Note

24 - 08 - 2020

What is the Employment Allowance?

The Government originally announced, in the Autumn Statement 2013, an

Employment Allowance of up to £2,000 to be deducted from the Employers’ Class 1

National Insurance Contributions (NIC). The allowance has been increased

subsequently and for the 2020/2021 tax year is £4,000.

The Government originally announced, in the Autumn Statement 2013, an Employment Allowance of up to £2,000 to be deducted from the Employers’ Class 1

National Insurance Contributions (NIC). The allowance has been increased subsequently and for the 2020/2021 tax year is £4,000. 

 

How is the Employment Allowance claimed?  

 

The allowance is claimed as a deduction against the Employers’ Class 1 NIC up to a maximum of £4,000.

 

Will the company receive a cash payment of £4,000?   

 

No, the allowance is offset against any Employers’ NIC due.

 

Who can claim the Employment Allowance?  

 

Any employer who incurs Employers’ Class 1 NIC and has Employers’ Class 1 National Insurance liabilities of less than £100,000 in the previous tax year.

 

Who is excluded from claiming the Employers Allowance?

 

The following is not an exhaustive list and the legislation should be consulted to decide if the employer is excluded.

The excluded employers include:

A company with only one employee paid above the Class 1 National Insurance Secondary threshold AND the employee is also a director of the company. This exclusion means that one person limited companies cannot claim the Employment Allowance.

A business cannot claim Employers Allowance for employees whose earnings are within the IR35 off-payroll working rules.

Employers who employ someone for personal, household or domestic work,such as a nanny, au pair, chauffeur, gardener, care support worker.

Employers already claiming the allowance through a connected company or charity.

Employers who are a public authority, this includes; local, district, town and parish councils

Employers who carry out functions either wholly or mainly of a public nature unless they have charitable status on 6th April 2014

 

When is the Employment Allowance available?

The Employment Allowance has been available since the 2014/15 tax year starting on the 6th April.  

 

Can I claim for past years?  

 

Yes. 

 

You can claim Employment Allowance for the previous 4 tax years, dating back to the 2016/2017 tax year. 

 

What are the previous tax years Employment Allowances?       

 

Tax Year Employment Allowance                                                                                                                                                                                                                     2014/15 to 2015/2016 £2,000                                                                                                                                                                                                                   2016/2017 to 2019/2020  £3,000                                                                                                                                                                                                             2020/2021 onwards £4,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           At what Salary levels are NIC's due?

 

Threshold 2020/2021 Weekly Earnings Rate due are                                                                                                                                                                                Primary (employees NI) 183.00  @ 12%                                                                                                                                                                                          Secondary (employers NIC) 169.00  @ 13.8% 

                                                                                                                                                                                                                                                             Note:The Employment Allowance can only be offset against Employers’ NIC NOT Employees’ NIC.     

 

Foremans LLP claim the Employment Allowance for eligible clients as part of our normal professional services.If you would like to discuss any of the issues noted above please contact us on:  01244 625 500 or 01978 364 000                                                                                                                           

or contactus@foremansllp.com                                                                                                                                                                                                                   Whilst all due care and attention has been taken in the preparation of these notes no liability can be accepted for any omission or item contained therein.               Foremans LLP                                                                                                                                                                                                                                                   April 2020. 

                                                                                      

 

 

 

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01244 625 500

Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage