The PAYE Employment Allowance: Could You Make a Claim?

Today, we’re diving into the world of the PAYE Employment Allowance. Whether you’re a seasoned entrepreneur or just setting up your business, understanding this allowance is crucial so let’s break it down, step by step.

What is the PAYE Employment Allowance?

The Employment Allowance (EA) is a financial relief provided by HMRC, reducing the amount certain businesses owe in employer’s National Insurance (NI) contributions. It’s not a cash-back scheme but rather a monthly reduction in your NI payments until you’ve used up the total allowance for the tax year.

Who’s Eligible?

To benefit from the Employment Allowance, a few criteria need to be met:

  1. Employment Status: You must employ staff and pay them wages. However, if you’re a limited company director and the only employee, you’re not eligible. This rule has been in place since 6th April 2016.
  2. Employer’s NI Bill: Your employer’s NI bill should be under £100,000 annually.
  3. Business Type: Sole traders or partnerships without employees don’t qualify, as partners aren’t considered employees in this context.
Who Might Miss Out?

While the Employment Allowance is a benefit for many, some businesses won’t qualify. These include:

  1. Businesses with a single employee who’s also the company’s director.
  2. Employers of domestic workers.
  3. Businesses where over 50% of their work is in the public sector.

However, there are exceptions. For instance, security personnel in government buildings or IT professionals working on government contracts are still in the running.

The Nitty-Gritty of Claiming

Claiming the Employment Allowance is straightforward:

  1. Check Eligibility: Ensure you tick all the boxes for eligibility.
  2. Employer Payment Summary (EPS): Notify HMRC of your eligibility status via EPS. This is crucial as HMRC needs to be informed every time you file.
The Amount in Play

For the tax year 2023-24, the Employment Allowance is set at a generous £5,000. This can significantly reduce your NI contributions, providing more liquidity for your business operations.

Changed Circumstances?

Life is full of twists and turns. If, during the tax year, you find that you no longer qualify for the Employment Allowance (maybe due to a shift in business operations), you’ll need to inform HMRC. Additionally, you’ll have to repay the amount you saved through the Employment Allowance for that year.

In Conclusion

The PAYE Employment Allowance is more than just a financial relief; it’s an opportunity for businesses to thrive and grow. By understanding the rules, you can make informed decisions that benefit your business’s bottom line.

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