What is Employment Allowance?
An Employment Allowance of £2,000 was introduced by the government in April 2014 and in April 2016, the Allowance increased to £3,000 where it has remained up to the current tax year 2018/2019.
How does it benefit employers?
Employment Allowance aims to support businesses that are creating and sustaining employment, reducing employer’s Class 1 National Insurance (NI) contribution each tax year by getting an exemption of up to £3,000 a year off your National Insurance liability.
Who can claim?
As an employer, you can only claim against the Class 1 NI paid, up to a maximum of £3,000 each tax year. You can still claim the allowance if you pay less than £3,000 a year but the total amount of Employment Allowance claimed must not exceed your employer’s NI liability. You can claim Employment Allowance if:
- You are a business, charity or community amateur sports club, with at least one employee and pay employer’s Class 1 National Insurance.
- You employ a non-domestic care or support worker.
If you have more than one employer PAYE reference, such as different businesses in a group, then you can only claim Employment Allowance against one of them.
Employment Allowance cannot be offset against Class 1A and Class 1B NI contributions arising from benefits-in-kind or from Pay As You Earn Settlement Agreements with HMRC. However, where a late claim in a tax year (for that tax year) means that there is insufficient employer Class 1 NICs liability remaining in the tax year to use the full amount of the Employment Allowance due to you, this can be offset against other current/future PAYE liabilities so that the benefit of the Employment Allowance is not lost.
Who cannot claim?
You can’t claim Employment Allowance if:
- You are the sole director and the only employee paid above the Secondary Threshold (this allowance ceased in 2016).
- You employ someone for personal, household or domestic work (like a nanny, chauffeur, gardener or care support worker).
- You are a public body or business doing more than half your work in the public sector (such as local councils and NHS services), unless you’re a charity.
- You’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership).
There are complicated rules where you own more than one company, so please take advice in these circumstances.
Latest changes to Employment Allowance
Announced in the Autumn 2018 Budget, the Government recognises that while the value of Employment Allowance to larger businesses is marginal, it is still meaningful for smaller businesses. Therefore, from April 2020, Employment Allowance will be available only to employers with an NI bill of less than £100,000 in their previous tax year. This measure is expected to ensure that over 99% of micro-businesses and 93% of small businesses continue to benefit from Employment Allowance.
How to claim
You can make your Employment Allowance claim via your payroll software at any time during the tax year. When you next send an Employment Payment Summary (EPS) to HMRC, simply put ‘Yes’ in the ‘Employment Allowance Indicator’ field.
You only need to claim Employment Allowance once, your claim will continue until you stop it. The indicator will calculate the allowance and reduce your employer’s (secondary) Class 1 NI each time you run your payroll until the £3,000 limit is reached or the tax year ends. It is sensible to check that the indicator carries forward when moving to a new tax year.
Can I backdate my claim?
If you’re a business or a charity, you can claim Employment Allowance for a previous tax year, dating back as far as 2014/2015. This HMRC guide may help: ‘Claiming Employment Allowance: further employer guidance’.
You should claim the Employment Allowance as soon as possible after 6 April using an EPS or you can claim retrospectively, up to four previous years after the tax year has ended for the year in which you wish to claim. For instance, a retrospective claim for the 2014-15 tax year ending on 5 April 2015 must be made by 5 April 2019. Claims cannot be made for tax years prior to the 2014-15.
A separate EPS should be submitted for each year when a retrospective claim is made for the Employment Allowance two, three or four years after the tax year has ended. The claim will continue into the current tax year as long as you don’t have a claim already in place. Retrospective claims are offset against existing or future PAYE debts unless the employer requests the payment from HMRC.
If you would like to discuss Employment Allowance further or if you have any other tax questions, we would be delighted to help you. Please do not hesitate to call us on 01865 379272.
