Skip to content

What is “Employment Allowance” and how much can it save my business?

What is "Employment Allowance" and how much can it save my business?

If you’re an employer running a growing business, there’s a possibility that you’re paying more tax than you need to.

That’s because some business owners are so busy running their business that they don’t realise the Annual Employment Allowance is not being claimed.

Eligible employers can reduce their annual National Insurance bill by up to £10,500. That’s real money which could be invested in the business via more marketing, new hires, better systems, or simply improving cash flow.

When is Employer National Insurance (NIC) paid?

Currently, Employer National Insurance Contributions (NIC) are paid for every employee who is:

  • Aged 21 or more who earn more than £416.67 per month (Secondary Threshold).
  • Aged 20 or less who earn more than £4,189 per month (Upper Secondary Threshold).
  • The amount paid is 15% on any earnings above the Secondary Threshold.

 

Each month the Employer NIC is:

  • Reported to HMRC via an RTI submission
  • Paid to HMRC (along with income tax and employee NIC) by the 22nd of the following month

 

Key questions about claiming the Annual Employment Allowance

What is the Annual Employment Allowance?

The Annual Employment Allowance allows eligible employers to reduce the amount of Employer’s National Insurance Contributions (NICs) they pay each year.

For many businesses, it means paying up to £10,500 less in Employer NICs every year.

Who can claim Annual Employment Allowance?

Most small and medium-sized business employers can claim.

An employer should be eligible if the following criteria are met:

  • The business (or charity) has been registered as an employer with HMRC.
  • There are two or more employees over the age of 21 on the payroll at any point in the year.
  • There are at least two employees over the age of 21 who earn above the secondary threshold (currently £416.67 a month) for at least one pay period in the year.
  • You don’t own another business which is already claiming the Annual Employment Allowance.

The most common reasons I see owner-managed businesses being unable to claim Employment Allowance are (1) only one director on payroll and (2) the second employee is aged 21 or less. In both cases, the business won’t qualify.

That’s why checking eligibility before making assumptions is essential.

How can a business claim the Annual Employment Allowance?

The Annual Employment Allowance is claimed through the payroll.

In most payroll software there is a ‘Yes’ checkbox for Annual Employment Allowance that must be ticked.

Doing this:

  1. Notifies HMRC that the Annual Employment Allowance is being claimed.
  2. No Employer NIC is payable on the first £10,500 employer NIC liability for the year.

The Employment Allowance claim will be shown as a deduction on the P32 payroll report.

Until the whole of the £10,500 has been claimed, the effect of claiming the Annual Employment Allowance is to reduce the amount of Employer NIC down to £nil.


All Annual Employment Allowance claims start from 6th April each year – the start of the tax year. The first claim will therefore be for the April payroll.

For most employers the Annual Employment Allowance claims means payroll costs are lower and cashflow is better in April and, possibly the following months.

How can a business backdate an Annual Employment Allowance claim?

An employer can backdate claims for up to four previous tax years.

To do so, a revised Employer Payment Summary which claims the Annual Employment Allowance must be prepared and submitted to HMRC.

Once processed and accepted HMRC will credit the employer’s PAYE and NIC account with the Annual Employment Allowance that was not previously claimed.

This credit can then be offset against future PAYE and NIC liabilities, improving cash flow.

Want help claiming the Annual Employment Allowance?

If you’re unsure whether your business has claimed the right amount of Annual Employment Allowance then now is the time to double check. 

With Annual Employment Allowance now worth up to £10,500, there is meaningful amount of cash at stake.

If you’d like a chat to see how we can help drop us an email to [email protected] or call one of the team on 0161 410 0020.

Disclaimer

You must take professional advice before making any decisions based on the information that you have learnt here. While every effort has been made, to make sure it is accurate it cannot be precisely tailored to your personal circumstances. This article is for general information only and no action should be taken, or refrained from, as a result of this information.  Professional advice should be taken based on specific circumstances in each individual case.  Whilst we endeavor to ensure that the information contained in the article is correct, no liability will be accepted by Krystal Clear Accounting which is a trading name of Kim Marlor Associates Ltd or damages of any kind arising from the contents of this communication, or for any action, inaction or decision taken as a result of using any such information.

Related Articles

In short, bank feeds create a digital link between your business bank account and your accounting software, such as Xero or QuickBooks.  

This means bank transactions are automatically downloaded into the accounting software. This simple piece of automation, completely removes the need to manually input every bank receipt and payment into the accounting software. 

Having bank feeds in place, saves a HUGE amount of time bookkeeping. That’s because it completely removes the need to manually input bank transactions into the accounting software. 

Saving time bookkeeping isn’t the only benefit for the business…. 

 

 

What are the main benefits to a business using bank feeds?

  • Saves Time & Money Bookkeeping

Bank feeds automate, what was previously, a time-consuming task of entering all the bank transactions into the accounting software. 

 This saves the business a HUGE amount of time (& money) spent on bookkeeping.  

  • Improves Cash Flow Visibility

With bank transactions being downloaded from the bank every day, it means it’s quicker and easier to keep the bank balance in the accounting software up-to date. 

With the accounting software up-to date, the bank is updated daily which gives you a clearer, real-time view of your business’s cash flow.  

This makes it easier for you to plan your cashflow, and take action to improve it. 

  • Enhanced Accuracy

There is always the risk of errors being made when data is being manually inputted into the accounting system. It is often time-consuming to find and correct any errors. Also, if an error is large then the Profit & loss and Balance Sheet reports will be inaccurate and potentially misleading. 

 Automating the bank transaction entry previously manual process, reduces the risk of errors being made and ensures that the bookkeeping records and reports are accurate. 

How to Link Your Bank to Xero

  • 1. Setup Online Banking:

Ensure that your bank account is set up for online banking. This feature is typically available from all major banks. 

  • 2. Add Bank Account in Xero:

Log into your Xero account and navigate to the banking section. Select ‘Add Bank Account’ and follow the prompts to search for your bank. 

  • 3. Enable Bank Feeds:

After adding your bank account details, you’ll see an option to set up bank feeds. Click ‘Agree’ to the terms, then securely log into your online banking portal through Xero to authorize the connection. 

 

Are Bank Feeds Safe & Secure?

Yes. 

Firstly, having bank feeds in place ONLY means bank transactions are downloaded into the accounting system. They do NOT give anyone else access to the business bank account. 

 Secondly, XERO has various security measures in place to give you a piece of mind that your financial data is safe and secure: 

 

  • Encrypted Connections: Xero uses advanced encryption technology to secure the data transmission from your bank to Xero. This means your sensitive information is encrypted during transit and cannot be intercepted or read by unauthorized parties. 

 

  • Compliance and Standards: Xero adheres to high standards of data security compliance, thus ensuring that its practices meet or exceed industry security standards and regulations. 

 

  • Regular Renewals: To maintain a high level of security, XERO requires that the bank feed connection is renewed every 90 days. This process is straightforward and helps ensure that the integrity of your financial data is always protected. 

 

people are connected
KIm Marlor the MD of Krystal Clear Accounting
krystal clear accounting

In Summary

In short, having bank feeds really saves businesses time and money on their bookkeeping.  

 They automate and eliminate what is otherwise a time consuming and error prone manual process.  

 Bank feeds is just one of the ways technology can be used to help business owners improve the financial side of their business.

Request a Call Back: