A Guide to National Insurance Relief for Small Businesses

For small businesses, finding opportunities increase profits is an essential element to a growing company. National Insurance Relief can be an efficient problem solver to the question of how to cut costs. Read on to find out what National Insurance relief is and how your business can claim it.

What is National Insurance relief?

As an employer, you contribute part of your employees’ National Insurance (NI) by subtracting it from their pay. Employers pay an additional amount of National Insurance under the class 1 National Insurance. Through relief, also known as Employment Allowance, your business can decrease your National Insurance contributions.

How much National insurance relief will I get?

With Employment Allowance, your small business gets an allowance of up to £5000 depending on your business’s total contributions. This means any money spent contributing to your employees’ National Insurance is reimbursed.

If your contribution is less than £5000, you can still claim NI relief depending on how much you had to pay that year. This means you will not get the full £5000 if your total National Insurance contributions are less than £5000, it will only relieve the total of your actual contributions.

It is recommended you do this before the end of the tax year. Whilst this amount may vary depending on your business size, this is still an effective way to reduce costs and support your small business.

Am I eligible for Employment Allowance?

A variety of businesses are eligible for Employment Allowance, especially small businesses. Provided your National Insurance contributions are less than £100,000 from the previous tax year and are on your Class 1 National Insurance. You will need to ensure you know your NI class for your employers as this may affect your eligibility, as seen below:

What is my National Insurance class?

National Insurance classWho pays
Class 1Employees under State Pension age earning more than £242 a week from one job – they’re automatically deducted by employers
Class 1A or 1BEmployers pay these directly on their employee’s expenses or benefits
Class 2Self-employed people earning profits of £12,570 or more a year
Class 3Voluntary contributions – you can pay them to fill or avoid gaps in your National Insurance record
Class 4Self-employed people earning profits of £12,570 or more a year

You are still eligible if your company is part of a group of companies and if you have more than one payroll. All contributions must still be under £100,000 from the previous tax year.

If you have hired a support worker for yourself or family members, you can also claim an allowance of up to £5000. Veterans can also claim relief, provided they are below the veteran’s upper secondary threshold (VUST). This amount will also vary depending on how much a support worker or Veteran contributes to National Insurance as one of your employees.

Who can’t claim National Insurance relief?

If you have an employee who is paid over the Class 1 secondary and is a company director, they are not eligible for Employment Allowance. Besides support workers, no employees hired for personal use (such as a nanny) are eligible.

If any of your employees are  earning within the IR35 ‘off-payroll working rules’ this will also affect your eligibility. It’s important to review these rules to see if they apply to your small business, check out our article on  IR35 regulations.

How can I claim National Insurance relief?

Claiming NI relief can be simple if you use the HMRC PAYE software for your payroll. If you have separate software, ensure you have the ‘employment payment summary field’ as an option and you can make a claim through that. The government website has a handy step-by-step guide on both options here: How to claim your NI relief.

When should I claim Employment Allowance?

You can claim Employment Allowance at any time of the year, but you will want to do it promptly before the tax year is over. If you are delayed in claiming, you may get a refund at the end of the tax year. Or if you owe any other tax, the allowance may go straight to paying that off.

You may also claim previous years – this can go back up to 4 tax years. The amount you receive may vary, the allowance between 2016 and 2022 is £3000-£4000.

We hope this article on National Insurance relief was helpful! Checking out your options for saving money is a great help for small businesses. Accountancy Solutions can help you through every stage of your business journey, get in touch for one-on-one guidance and support. For more small business advice, check out our guide on ‘what is bookkeeping?’.