Employers to save £1000 following increase in the Employment Allowance
The Employment Allowance has recently increased following the Chancellor’s 2022 Spring Statement. With the war in Ukraine and inflation soaring to a 30-year high driven by spiralling food and fuel costs, the announcement has been a green shoot of good news. Here we look at the changes to the Employment Allowance in more detail.
What is the Employment Allowance and how does it work?
The Employment Allowance is designed to help smaller employers with their employment costs by cutting their Class 1 National Insurance liability. As announced in Chancellor Rishi Sunak’s Spring Statement, from this month and for the 2022-23 tax year the allowance will increase from £4,000 to £5,000. Businesses can still claim the allowance if their NI liability is under £5,000 a year.
The £5,000 allowance applies to the business itself, not the individual employees. As long as your client has an employer’s NI liability of less than £100,000 a year they’ll be able to claim EA. If they run multiple payrolls, they will need to also bear in mind that a claim can only be made against one of them.
The EA is also classified as de minimis state aid if your client’s company makes or sells products and services. There’s a limit to how much de minimis state aid is claimable - more details can be found on the government website.
Employment Allowance: A quick potted history
First unveiled in 2014, the Employment Allowance initially provided a £2,000 reduction in employer’s National Insurance contributions. The vast majority of employers have since been able to benefit, including limited companies with just one director/shareholder.
Two years later in April 2016 the £2,000 reduction was increased to £3,000. It subsequently rose again to £4,000 in 2020. However the downside is that the rules were then altered so that sole company directors were made ineligible.
How do businesses claim the Employment Allowance?
The Employment Allowance is claimed as part of the Real Time Information (RTI) submission to HMRC. Your client must inform HMRC that their company is eligible and intend to claim the Employment Allowance in their RTI submissions.
Can a claim for the Employment Allowance be made for previous years?
Yes, the Employment Allowance can be claimed retrospectively for the previous four tax years. Your client will need an EPS for every new annual claim. Again, there’s further information about this on the Gov.uk website.
What impact does claiming the Employment Allowance have on R&D tax relief?
For clients intending to claim R&D Tax Credits, there are a couple of things they should be aware of when also claiming the Employment Allowance.
Firstly, as we’ve already mentioned the Employment Allowance is classed as state aid. This means that the company will be barred from claiming R&D Tax Credits under the SME branch of the R&D Tax Credits scheme for employment costs covered by the Employment Allowance.
In reality this may not be much of a problem if the company is claiming R&D tax relief on all of its employment costs. The difficulty will come where this isn’t the case. However, relief can still be claimed for the £5,000 using the RDEC branch of the scheme.
Companies that are claiming using the SME scheme will see the biggest impact. That’s because they will need to work out the difference between the tax relief claimed using the SME scheme (which itself is considered state aid) and what would have been received by claiming under RDEC (not state aid). This will then show the amount of aid a company has received in total. If this difference is more than €200,000 across any three year period, the company will have then gone over de minimis limits so should not be claiming Employment Allowance. A record will need to be kept by the company to show HMRC if requested.
The whole state aid concept makes it very easy to fall foul of the R&D tax relief rules, particularly for SMEs. HMRC are also very hot on this. It’s certainly an incredibly niche and complex area of tax, which is why most accountancy firms collaborate with a specialist R&D tax consultancy for support.
Partner with R&D tax experts Myriad Associates and get your clients’ the tax relief they’re owed
There’s a baffling array of R&D tax and funding consultancies out there and picking one for your accountancy practice to work with isn’t easy.
Having worked solely in the business of R&D tax and funding for well over a decade, the Myriad Associates team knows exactly what works in a claim and what doesn’t.
We're proud to have helped our clients claim over £78 million in R&D Tax Credits and Video Games Tax Relief over the years, as well as more than £80 million in R&D grant funding. Plus, our generous referral scheme means your practice can benefit financially too.
How do Myriad's partner packages work?
Firstly, we’ll sit down with you to identify whether your client is likely to have an eligible R&D tax relief claim. This is a very quick part of the process and can be done via video call so you don’t even need to leave your desk.
Once we’ve ascertained eligibility, we’ll then be able to offer you some different ways of working with us to give the best outcome for you and your client.
Myriad Associates has different pricing options to fit around your needs, including Success-Only fees for R&D Tax Credit claims, calculated as a percentage of your client’s Corporation Tax savings. We don’t pile on any extra consultancy fees either which makes us extremely competitive.
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"Myriad Associates came in, they helped us identify what was and what wasn’t eligible for R&D tax credits. They then conducted a 45 minute technical interview, went away and came back with a very detailed and accurate technical report." - Toma Habashi, Managing Director, Silvertoad Ltd.
We’re here to answer your questions and help build your accountancy firm’s brand by expanding your R&D tax service to clients without the headache. Speak to our team on 0207 118 6045 or use our contact form to get the ball rolling.
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