Is your limited company eligible for Employment Allowance?

Is your limited company eligible for Employment Allowance?

If you own or run a limited company you could qualify for Employment Allowance. This allowance reduces the amount of National Insurance that employers have to pay by £5,000 from this month (April 2022) onwards.

If you’re unsure about whether your company qualifies, this guide will help you work it out. And if you’re looking for more details, our team is always happy to chat to you.

What is Employment Allowance?

The government implemented the scheme to stimulate the economy and to encourage small businesses to employ more people. It was announced in the spring budget. All businesses and charities can benefit from the allowance if:

  • They employ at least one employee
  • National Insurance (NI) in the previous tax year was less than £100,000

Claiming the allowance happens each month via your company’s payroll process, meaning you’ll pay less employer’s NI. This happens until you use up the allowance of £5,000 or when the new tax year starts.
If you make off-payroll payments – for example, to contractors – they do not count towards the £100,000 threshold.

Eligibility for Employment Allowance

If you pay Class 1 Employers’ National Insurance Contributions (NIC), then you can claim the allowance, which includes limited companies.

Companies with one or more employees are eligible if at least one other person, in addition to the director, is paid above the secondary NIC threshold of £9,100 per year (2022/23).

If you and your spouse are directors and are both above the Class 1 NIC threshold, you are eligible. Also, the self-employed are only entitled to the allowance if they have employees and make Class 1 NICs.

Those who cannot claim include:

  • The self-employed cannot claim against any profits they pay themselves personally in drawings, as they pay Class 2 and Class 4 contributions.
  • Public sector bodies are unable to access the allowance.
  • Sole directors who do not employ anyone are exempt, as the allowance is aimed at encouraging firms to take on staff.

What should I do next?

If you believe your business is eligible, submit your claim as soon as possible now the new tax year has started. You can do this via Xero, but if you are unsure, you can book a call with our team.

HMRC will only notify you if your application is refused. If it is accepted, the amount will be deducted each month until the total of £5,000 is recovered.