Around 1,153,000 people got the employment allowance benefit in the 2021/22 tax year. As a company director, you may wonder how you can claim employment benefits on your tax returns. Let IBISS & CO.’s personal tax advisors explain.

What is Employment Allowance?

Understanding if and how the company director can claim employment allowance, it’s important to know what the allowance entails. The employment allowance came into effect after the National Insurance Contributions Act 2014 to encourage small businesses to hire more employees. Under this scheme, eligible firms can reduce the employers’ Class 1 National Insurance contributions (NICs) amount through payroll on wages. However,  this allowance does not apply to Class 1A or Class 1B NIC liabilities.

Claiming Employment Allowance

The process to claim employment allowance is similar to other allowances and can save your company a lot of money,

Who Cannot Claim It

Before going into how to claim an allowance as a company director, remember that if there is only one employee above the Class 1 NIC threshold and they’re the director, they will not be able to claim this allowance. In addition, if the work was largely in the public sector and the company is not a charity, employment allowance doesn’t apply.

tax prep checklist

How to Claim It

You can claim employment allowance through payroll whenever you want in a tax year; however, if you’re a small business company director, have a chartered tax advisor check if you meet the eligibility criteria. You must send an Employment Payment Summary (EPS) to HMRC to claim an employment allowance.

You can claim it through the HMRC’s basic PAYE tool.

  1. Select employer name.
  2. Add information after selecting change employer details.
  3. Click yes in the employer allowance indicator field.
  4. Select a business sector that applies to your company.
  5. Send the summary to HMRC.

You can also pay through payroll software if your software has a basic EPS field.

When to Claim It

An employment allowance will cover the tax year, so you’ll need to claim it every year you’re eligible. The earlier you claim the tax, the sooner you’ll receive it. Although, you can claim it whenever you want. If the tax year passes and you didn’t claim it, you can contact HMRC to use the allowance to pay tax or NICs like the VAT, corporation tax, etc. you can also ask them to issue a refund if you don’t owe anything.

Reduce Your Taxes Legally With IBISS & CO.

If it’s your first time as a company director, there may be more things than employment allowance that you might not know about IBISS & CO.can help. We are the leading tax accountant consultation service in London and Walsall. We offer business and tax advice and help clients navigate the intricacies of tax filing so they can understand the tax return process for their maximum benefit.

Contact us for general accounting and specialist tax services.

Print Friendly, PDF & Email