What Is the Employment Allowance?
Updated: Sep 19, 2022
The Employment Allowance, also known as the Employment Allowance for Employers (EA), is an allowance you can use to reduce your business tax liability.
You get this allowance if you pay employees wages or salaries of less than £100,000 in a given tax year (January 1 - December 31). If your business pays wages or salaries between £100,000 and £120,000 in the same year, you will still get this allowance, but you will only receive 90% of the full amount.
The Employment Allowance Explained
The Employment Allowance is a financial relief in the UK which was introduced to encourage employers to take on more staff. It was announced by Chancellor George Osborne at Budget 2013, and became active on 6 April 2014.
The allowance allows businesses to deduct 20% of an employee’s earnings above £9,440 a year from their tax bill, up to a maximum of £4,000 per employee.
It doesn’t matter if you are an employer with one or more employees or if you have no employees and just want help running your business; as long as you employ people then it’s worth checking out!
Things To Consider When Applying The Employment Allowance
When applying for or claiming an employment allowance, there are a few things to consider: Employment allowances can be claimed by any employee who is paid on a PAYE basis.
They can also be claimed by self-employed individuals as long as they meet certain criteria. To determine if you should claim an employment allowance and how much you will receive, you’ll need to make sure that you’re not eligible for another tax break.
Tax Increases in 2022 – 4 things you need to know about increasing income tax threshold
Employers will be paying more National Insurance (NI) and Class 1 NI contributions in 2022/23. This is because of changes that are coming into force for most employees earning between £12,500 or more.
The threshold at which you start paying NI is increasing to £12,500, but employees and employers’ NI rates are also going up by 1.25%.
As a result of these changes, 100% of businesses are expected to pay more in employer's national insurance in 2022/23 compared with 2021/22.
More than nine out of 10 firms will see their employer's national insurance rise or stay put next year.
What You Need To Know About Car Expenses In 2022/23
The only thing worse than trying to tally up all your business-related car expenses and mileage is having to pay those taxes after filing.
That’s why it’s important to know what counts as a car expense, so you can maximize them while minimizing your tax hit.
For 2022/23, it doesn’t matter if you're self-employed or work for someone else; the mileage allowance remains at 45p per mile despite much higher fuel prices.
Tax Rates & Income Tax Thresholds 2022/23 - Personal Tax Allowances Explained
The current personal tax allowance for 2022/23 is £12,500. This means that anyone who earns less than £12,500 doesn’t pay any income tax on their earnings.
Furthermore, a number of people are eligible to earn over £100 a week before they are taxed. For example, if you’re single and earn between £100 and £125 per week you only pay tax on some of your income.
If you're paying basic rate tax on your whole wage then it will be 20%. If it's higher rate then 40%.
And finally, if you earn enough to fall into that top bracket of 45% then half of what you earn is taxable at 45%. Find out more about the latest personal allowances here.
Changes to Income Tax Rates & Bands From April 2022
The new Income Tax rates and bands that apply from April 2022 have now been announced.
The personal allowance will be frozen at £12,500 for 2022/23 and 2023/24, although there will be an increase in the bands for paying NI to offset slightly the 1.25% increase in NI.
The higher rate threshold is also fixed at £50,000 from 2022 ensuring many more workers pay more tax due to fiscal drag.
Here’s a page on trying to make more money to off set these tax increase and keep more of your income.
How Will The New, Free, Childcare Scheme Affect My Taxes?
If you’re thinking about starting a family and have concerns about how to pay for childcare, take heart.
The U.K. government has introduced tax-free childcare in April 2017, which includes a 25% government contribution towards childcare fees per child or £2,000 per year if your children are at nursery or in full-time education.
In addition to that, parents of three and four-year olds are also eligible for 30 hours free childcare funded by the government with additional 15 hours free care available to other two-year olds (and their parents).
This essentially gives up to 1 million UK families 30 hours free care every week.
What Is the Employment Allowance - The Bottom Line
Starting a new business can be exciting and frightening all at once. But as you work on launching your business, it’s important to remember that you don’t have to start from scratch.
That’s where government benefits come in handy. UK small businesses can benefit from using tax breaks like deductions, exemptions and credits that enable them to reduce their overall income tax bill.
One of these breaks is known as the employment allowance. Click on the link for the latest eligibility details from HMRC.