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What is the Employment Allowance increase for small businesses?

What is the Employment Allowance increase for small businesses?

Esme Shakeshaft


The Employment Allowance has risen from £4,000 to £5,000. This means that businesses and charities whose NIC liabilities were under £100,000 will be able to claim up to £5,000 off their employer National Insurance Contributions (NICs) bill.

Eligible employers need to claim this allowance each year.  To benefit from the Employment Allowance increase you need to file an Employer Payment Summary (EPS) from your payroll software. If you need assistance with your payroll, Moore (South) provides a range of payroll services to keep your business compliant and ahead of the curve.

Announced during the Chancellors Spring Statement to reduce employment costs, the change takes an extra 50,000 firms out of paying NICs and the Health and Social Care Levy. This increases the total number of businesses not paying NICs and the Levy to 670,000.

You can make a claim for the Employment Allowance up to 4 years after the end of the tax year in which the allowance applies. For example, if you want to claim Employment Allowance for the tax year 2018-2019, you must make your claim no later than 5th April 2023.

According to the Chancellor, 94% of businesses benefitting from the £1,000 increase are small and micro businesses, and the sectors that will see the highest numbers of employers benefitting are the wholesale and retail sector (87,000); the professional, scientific and technical activities industry (63,000); and the construction sector (52,000).

Many smaller employers, those that can claim the £5,000 employment allowance, will likely avoid the payment of the 1.25% increase in employers’ Class 1 contributions. However, the increase will also apply to Class 1A NIC employer contributions,  and these are not covered by the employment allowance. Class 1A NIC is payable on the value of taxable benefits provided by employers and is levied at the end of each tax year.

This change is likely to result in a substantial increase in administrative burdens and costs for businesses with the need to amend payrolls to reflect increased NIC rates from April 2022 followed by a brand new levy with effect from April 2023.

You can find more information on the Health and Social care changes and how they can affect your tax liabilities and contributions to care here.

If you need assistance with payroll or the employment allowance, please contact us.