Eligible employers can reduce their National Insurance liability by up to £5,000 for the 2022/23 tax year thanks to the Employment Allowance.
If your business has employees, then you maybe eligible for the allowance. As a result, you’ll pay less employers’ Class 1 National Insurance when you run your payroll until the allowance has been used or the tax year ends,whichever is first.
Businesses and charities can still claim the allowance if their liability was less than £5,000 a year.
Employers’ Class 1 National Insurance contributions, rates and thresholds for the 2022/23 tax year are available from the government’s website.
Is my business eligible for Employment Allowance?
To be eligible to claim the Employment Allowance you must be:
- Registered as an employer.
- A sole trader, limited company or partnership with employees.
- A limited company that employs only directors, where two or more directors earn more than the secondary threshold for Class NICs. Sole directors without employees are exempt as the allowance is aimed at increasing employment.
- Your Employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.
It doesn’t apply, however, where IR35 applies, so you must not include off-payroll workers in your calculations.
How it works
The £5,000 allowance applies to your business and not individual employees. If your NI bill is £5,500 in the total tax year, for example, you will only need to pay £500! Any business with more than one payroll can only claim against one.
How does it work with my payroll software?
If you use accounting software, such as Quickbooks, then the allowance is not applied automatically. You must check that your business is eligible and, if so, tick the appropriate box that says you qualify for Employment Allowance.
The screenshot below shows how it works in Quickbooks.
If you’re unsure about eligibility, you can check HMRC’s website.