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Employment allowance: What is employment allowance? Who qualifies?

EMPLOYMENT allowance changed during the coronavirus pandemic this year, with alterations to the qualifying criteria made from April 2020. What us employment allowance and who qualifies?

Coronavirus has wrought damage both on public health and the general economy, leaving businesses and their employees financially unstable. Many people have relied on newly extended benefits such as Universal Credit, which have given them some breathing room as companies cut workers. But one benefit, squarely directed at companies, saw its criteria narrowed as the pandemic peaked.

What is employment allowance?

Employment allowance gives companies a chance to reduce their annual National Insurance costs.

Eligible employers can have up to £4,000 struck off their Class 1 National Insurance each year.

The reduction comes each time they run their payroll until the amount has gone or the tax year ends.

Companies may only claim employment allowance against their Class 1 National Insurance liability up to a maximum of £4,000 each year.

They may claim it even if the liability came to less than this amount at the end of the year.

Both businesses and charities can make use of the allowance.

But they must make sure they meet a select set of criteria beforehand.

Who qualifies for employment allowance?

Employment allowance had a core set of eligibility criteria which remained unchanged until April 6 this year.

Any business can claim employee allowance, but falling into some categories will exempt them.

If a business consists of a group of companies under the same control, only one of those companies may claim it.

They may claim employment allowance on an employee if they don’t fall into one of the following categories:

  • The employee is employed for domestic duties eg nanny or gardener
  • The sole director is the only employee paid above the secondary earnings threshold
  • The business is a public body or is doing more than half of its work in the public sector (unless it is a charity)
  • The company only has deemed employment income under the IR35 rules

The way employment allowance works changed on April 6 and narrowed the scope of businesses it covers.

From the date, only small businesses with a National Insurance bill of £100,000 or less in the previous tax year.

As such, larger businesses will end up suffering the most from the new change.

The restrictions listed above have continued to apply following the changes.

What is employment allowance?

Who qualifies for employment allowance?

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