The £4,000 Employment Allowance

Employment allowance is a tax relief scheme in the UK that allows eligible small business owners with employees to apply to reduce their annual National Insurance bill by up to £4,000.

If you’re an employer, you can apply year after year for the allowance – it isn’t just a one-time payment. If you’re eligible, you can even back-date your claim for up to four years, as long as you have an Employer Payment Summary (EPS) for each of the relevant years.

Employer NI is typically charged at 13.8%. By way of example, a full-time employee with a salary of £20,000 will incur Employer NI of £128.33 per month or £1,540 per year.

This means a company with one employee (who is not also a director) paying a salary of £20,000 and claiming the Employment Allowance will not pay any Employer NI in the tax year as the full amount (£1,540) is within the £4,000 allowance.

For eligible businesses, the Employment Allowance will be automatically subtracted from Employer NI by their payroll software.