If you’re a business owner in the UK, you may be eligible for the Employment Allowance, which can help you save money on your National Insurance contributions. This allowance can be a valuable resource for businesses looking to reduce their expenses and squeeze more into their bottom line.

What is the UK Employment Allowance?

The UK Employment Allowance is a government initiative that allows eligible small businesses to reduce their National Insurance contributions by up to £5,000 per year. This can be a significant cost savings for businesses, especially those with a small number of employees.

Who is eligible for the UK Employment Allowance?

To be eligible for the UK Employment Allowance, a business must have paid Class 1 National Insurance contributions in the previous tax year. However, the business’ Class 1 NI contributions must also have been less than £100,000 in that previous tax year.

Additionally, the business must have an employer’s liability insurance policy in place. The allowance is available to most businesses, including sole traders, partnerships, and limited companies.

However, businesses that employ only the owner or director are not eligible for the allowance. It’s important to note that businesses can only claim the allowance once per tax year, regardless of how many PAYE schemes they operate.

How much can businesses save with the UK Employment Allowance?

Businesses in the UK can save up to £5,000 per year on their National Insurance contributions with the UK Employment Allowance. This is the amount for the 2022/23 financial year. The maximum amounts for previous years were:

  • 2015-16: £2,000
  • 2016-20: £3,000
  • 2020-22: £4,000

Of course, you are not automatically entitled to this full amount. The allowance depends on the amount of National Insurance contributions being made – you can only claim the full amount if you’ve paid £5,000 or more in NI contributions that tax year.

How to claim Employment Allowance

Once you are sure your business is eligible, businesses can claim the allowance through their payroll software or by contacting HM Revenue and Customs. You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner). It’s important to keep records of the claim and any adjustments made to National Insurance contributions.

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