Can contractors claim Small Employers’ Relief?

Small Employers’ Relief (SER) is often a tax relief that is not on the radar of many people. If you are a contractor using a Personal Service Company (PSC) or an umbrella company, it’s worth considering if you’re eligible for Small Employer’s Relief.

In this blog we explain and give you comprehensive information on SER and its relationship with Employers Allowance.

What is Small Employers’ Relief (SER)?

SER is relevant to contractors if you are working through a PSC, as you are classed as an employee of the PSC. SER is applicable if your pay Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP), or Shared Parental Pay (ShPP).

It is important to also note that employers can no longer claim Statutory Sick Pay (SSP) from HMRC.

Can contractors claim Small Employer’s Relief ?

Yes, if you are working through a PSC, you are classed as an employee and therefore if you qualify for the statutory payments, you’ll be eligible for the Small Employers’ Relief.

What is HMRCs criteria for being a ‘small employer’?

HMRC’s criteria for a small employer, is someone that has paid £45,000 or less in National Insurance contributions before the deduction of Employment Allowance in the previous tax year. This is applicable from tax year 2013/14 onwards.

Under SER, what can I claim?

You can recover an additional 11% of any Statutory Maternity, Paternity, Adoption or Shared Parental Pay that the employer has paid to the employee (if you meet the eligibility criteria

A business that qualifies as a small employer can claim back 100% of the value of statutory payments made as “Recovery” and a further 3% of the value as “Compensation”. This rate has changed from 4.5% applicable to payments before April 2011.

Medium or large companies can claim via ‘recovery’

You’ll be classed as a medium or large employer, if the total gross NIC bill from the previous tax year was greater than £45,000, and you can’t apply for small employers’ relief. But all is not lost, medium or large businesses can still reclaim 92% of the value of statutory payments made as “Recovery” only but cannot claim anything as “Compensation”.

An example of an SER claim

If you hit the eligibility criteria, here’s an example of what you can recover:

Consider an employer who paid Class 1 National Insurance Contributions for tax year 2019/20 of £5,500.

This will be the deemed qualifying tax year for statutory payments made to relevant employees in the tax year 2020/21.

The employer is eligible for SER, as they are within the threshold of £45,000. The amount that can be recovered for statutory payments is calculated as follows:

Gross Class 1 National Insurance Contributions for the tax year 2020/21- £6,000

Statutory payments made- £1,500

Amount to be recovered = 103% * £1,500 = £1,545

(100% of the statutory payments plus 3% compensation)

Net NIC liability payable to HMRC £4,455.

The amount that needs reclaiming needs to be included in the employer payment summary.

SER advanced funding

To make payments to HMRC, the employer can apply for advanced funding (up to 4 weeks before) if the amount of statutory payments exceeds the total tax and NIC payable for the period.

Example: The employer has £3,500 in PAYE liability pay and £4,500 to reclaim in statutory payments. The employer can apply for an advance payment of £100.

What is Employers Allowance (EA) and does it affect SER?

Employers Allowance is only available if you are a business that has additional employees, other than yourself. Sole trader/director companies without other employees are not eligible to claim the Employers Allowance.

If you’re eligible, then you may be able to offset up to £4,000.00 off your Employer National Insurance bill for the year using the Employment Allowance.

If you claim EA but are also classed as a Small Employer you could also qualify for Small Employers’ Relief which means that you can reclaim 103% of any Statutory Maternity, Paternity, Adoption or Shared Parental Pay that you pay to your employees. Small Employers’ Relief can be claimed irrespective of you qualifying for EA.

Can I claim SER when running a Personal Service Company?

The simple answer is yes, PSCs qualify as small employers and therefore can claim SER if they meet the other eligibility criteria. Umbrella’s will generally do not qualify as they would have Class 1 NIC more than £45,000.

It’s worth checking with an accountant for up to date information, if you are operating a PSC and are eligible for the any of the statutory payments mentioned, then you should be eligible to claim Small Employers’ Relief.

For more information, contact us for services relating to Small Employers Relief (SER) or Employers Allowance (EA).

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.