What is Employment Allowance?

Expert advice and inspiration to help you build a more successful business

Get business, profitability and tax-saving tips

Discover a little-known tax break you can use in your painting & decorating company to quickly and easily save up to £4,000 in cash every year

It was late on a Tuesday afternoon, it had been warm that week but now the air had turned cooler and it had started to rain. The breeze was refreshing, and the nostalgic smell of warm, wet tarmac was bringing back long held memories of childhood.

The phone rang, it was Phil. 

Phil was a new client we had recently welcomed to the fold at the height of the COVID lock down period.

Phil had owed his own decorating business for the past 9 years, employed a handful of key staff and brought in the services of a few other labour only subcontractor painters when he picked up larger jobs. Things had been going well… until the lock down.

Like every other business owner, Phil was looking to save as much cash as he could during the pandemic, and like everyone else, he was worried about what the future would hold. 

I had asked him to call me so I could reveal a little-known tax claim to him that he could use to quickly and easily tap into to get much needed extra cash into his business.

So, What is Employment Allowance?

“So, what is employment allowance”? Phil asked eagerly.

“Employment Allowance is a little-known tax break for business owners who employ staff.” I replied.

It allows you to save up to £4,000 a year in employment taxes, which means you have more cash to take home or to plough back into developing the business.

The way you save is by paying less employer’s Class 1 National Insurance every time you run your payroll until your reach the £4,000 limit or you reach the end of the tax year, whichever comes sooner.

Can I Claim Employment Allowance?

“Can I claim this… employment allowance than” Phil interjected

Only certain businesses are eligible to claim Employment Allowance.

You can claim Employment Allowance if you’re a business or charity and your employers’ Class 1 National Insurance liabilities were less than £100,000 in the last tax year.

You can claim Employment Allowance for the previous 4 tax years dating back to the 2016/17 tax year.

There are a number of rules you must abide by if you are part of a group of companies, or you run several payrolls, and you need to make sure claiming the allowance does not make you exceed the de minimis state aid you are allowed to get over a 3 year period.

Who Cannot Claim Employment Allowance?

Here are a few things you need to know about who cannot claim Employment Allowance:

You can’t claim Employment Allowance if you’re:

  1. a public body or 
  2. you’re doing more than half your work in the public sector (unless you’re a charity) and 
  3. you can’t claim if both of the following apply:
    1. You’re a company with only one employee paid above the Class 1 National Insurance Secondary Threshold
    2. The employee is also a director of the Company

The third scenario is a typical case of a one-man band operating through the vehicle of a company. This is not classed as eligible for Employment Allowance, because the tax break was created to make it cheaper to take on new employees and this scenario defeats the object.

There are other rules surrounding what type of employees cannot be included in your claim including:

  • Anyone whose earnings are within IR-35 off payroll working rules
  • Someone you employ for personal, household, or domestic work (such as a nanny or a gardener)

“So” I smiled, “on the face of things you seem perfectly placed to take advantage of this £4,000 tax saving”.

“You employ staff on your payroll, you’re not a one-man band sole director company and looking at your records…”

I paused for a moment whilst I scanned across his figures on the Xero cloud accounting package we had set up form him earlier that month.

“Your Class 1 National Insurance Liabilities are safely below the £100,000 limit set by the scheme” I concluded

How do I Claim Employment Allowance?

“That’s great”! exclaimed Phil.

I could sense him smiling too now, over the phone.

“So how do I go about claiming Employment Allowance”?

“It’s complicated, but it can be claimed quickly and easily with some help from a seasoned accountant” I laughed

“The best part is, you will get our full support with this as you are signed up to our monthly payroll service”

“We’ll make sure you benefit from this really useful tax saving and keep the cash in your business, and You can rest easy knowing our expert accountants will take care of everything for you”

“That’s great” Phil smiled “didn’t think it would be that easy”.

“Easy when you know how” I said.

“There’s that smell of the wet tarmac again” I reminisced,” is it just me or does that smell take you straight back to summer thunderstorms when you were a kid”?

Get a free discovery call today

If you would like to quickly and easily claim back Employment Allowance for your painting & decorating business without having to spend hours working through endless criteria and regulations get in touch now to see how we can help.