Changes to Employment Allowance

In the 2015 Autumn Statement it was announced that there would be changes to the Employment Allowance from the 2016-17 tax year.  On the most part these changes are good for small businesses though single director businesses will lose out.

The Good News

The Employment Allowance is rising from £2,000 to £3,000 per tax year from April 2016.  If as a small business you employed two people on an annual salary of £20,000 each you would only pay £281 in employers Class 1 National Insurance for the whole year instead of £3,281 as would be the case if the Employment Allowance did not exist.

The Bad News

The number of employers that are eligible for Employment Allowance will reduce, at least 150,000 single director companies will no longer be able to claim this allowance.  However if you are a business with multiple directors or other employees on your payroll you will still be able to claim the allowance.

Are you eligible?

The Employment Allowance is open to most business and charities who pay employers Class 1 National Insurance.  Though there are some employers who are not eligible for the scheme, including:

  • domestic employers
  • public bodies or businesses who work mainly or wholly of a public nature, except charities
  • service companies
  • those who are part of a group that has already claimed the Employment Allowance
  • single director companies

For more details on eligibility please look at the guidance note provided by HMRC.

How to claim?

Claiming your Employment Allowance should be a simple process through your payroll software or alternatively through HMRC Basic Tools.

You only need to claim Employment Allowance once, this automatically roles over to future tax years.  If you become no longer eligible then you will need to mark this as such in your payroll records.

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