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Employment Allowance – What is it and How Does it Work?

17 March 2023
Professional photograph of Head of Payroll, Sarah Nicholson

by Sarah Nicholson, Head of Payroll

Employment Allowance may be the most exciting piece of legislation to affect small businesses in recent times. However, it still tends to be a confusing topic. Our Head of Payroll, Sarah Nicholson, explains everything you need to know.

Employment Allowance could be a significant saving that can help eligible employers reduce National Insurance by up to £5,000. The Class 1 National Insurance discount will be processed each time you run your payroll until the £5,000 is used or until the tax year ends.

Businesses and charities (as well as those who employ a care or support worker) can claim the allowance if their Employer NICs is less than £100,000 in the previous tax year. Unfortunately, single director payrolls do not qualify.

If you have not claimed for previous years so can you do so, going back to the 2018-19 tax year. To understand how to claim, please see HMRC’s instructions here

Reminder: You must submit an Employer Payment Summary (EPS) at the beginning of each tax year.

If you have further questions regarding employment allowance, contact a member of our specialist Payroll Outsourcing team in Bury.

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