Changes to Employment Allowance

A government incentive for businesses to hire more staff is about to have a makeover. Tracey Cousins from our Payroll Department discusses what lies ahead.

The Employment Allowance is an annual amount that is currently available to all businesses and charities, with some exclusions, to offset against their Class 1 secondary NICs bill. It remains at £3,000 for 2019-20. It was introduced in April 2014 to support employers to grow and hire new staff and is currently used by 1.1 million employers.

Sole director companies without additional employees cannot claim the Allowance. If your company does have one or more employees, at least one other person in addition to the director must be paid above the secondary NIC threshold of £8,632 per year 2019-20 to qualify. And if you have more than one company in the same group, it can only be claimed by one business.

The allowance will reduce your employers' secondary Class 1 National Insurance each time you run your payroll, until the £3,000 has been exhausted or the tax year ends – whichever is sooner.

You can only claim a maximum of £3,000 each tax year against Class 1 National Insurance you've paid, but you can still claim the allowance if you pay less than £3,000 a year.

For larger companies, the £3,000 benefit is small in relation to their total employment costs and is unlikely to provide an incentive to take on staff. From 2020-21, therefore, the government will limit access to the EA to businesses and charities with employer National Insurance contributions below £100,000.

If you would like more information or how our payroll service can help you, contact us on 0115 955 5500 or email enquiries@pagekirk.co.uk.