In the autumn statement we heard that employment allowance will be fixed at £5,000 for another year. But what is employment allowance and how do you know if your business is eligible?!

Well employment allowance was designed to help smaller businesses with their employment costs by reducing eligible employers National Insurance costs. For this year and continuing into the next tax year this amount is £5,000. Each month the company’s PAYE liability (the tax and NI owed to HMRC for each employee) is reduced by the amount of employers NI until the £5,000 is reached. For some employers the £5,000 is used up in the first month or two, but for most small businesses the £5,000 will last well into the tax year.

A business (or charity) can be ineligible if:

  • It only has one employee paid above the secondary NI threshold (£9100 in 2022/23) and that same employee is also a director
  • It’s connected to another business that claims employment allowance
  • It received de minimis state aid (e.g. Government grants) of more than 200k euros within the last 3 years
  • more than half of its business comes from sales to public sector customers (charities excepted) or
  • had NI costs above £100k in the previous tax year.

It is worth noting that if you are eligible, but your circumstances change part way through the year then you might end up having to pay HMRC back what has been claimed. For instance, if you merge your company with another that is claiming the employment allowance then only one of you can claim and the other will have to pay back what has been claimed.