What is employment allowance?
Employment Allowance is a National Insurance credit that is offset against Class 1 Employer’s NI. The maximum amount that can be claimed in each tax year is £3,000, although you can still claim if you pay less than £3,000. When it was first introduced in 2014 you could claim up to £2,000 but it increased to £3,000 in April 2016.
You can claim if:
- You are a business, including sole traders and partnerships, or charity paying Employers Class 1 NI.
- You can claim if you employ a care or support worker.
You can’t claim if:
- You are a director and the only employee.
- You employ someone for domestic work e.g. Cleaner or Gardener
- You are a business that does more than half of your work in the public sector, for example the NHS.
- If you have more than one employer PAYE reference, you can only claim against one of them.
How to claim Employment Allowance?
You would claim through your Payroll software and tick the box next to the “Eligible for Employment Allowance”. This will then send an EPS (Employer Payment Summary) to HMRC to let them know you’re eligible and to start claiming it.
In Sage 50 Payroll:
- Go to “Company” on the left hand menu.
- Then “Settings”.
- Tick the box as shown.
If you use HMRC’s Basic PAYE tools:
- Select the relevant Employer in the menu on the homepage.
- Then select “Change employer details”.
- Tick “Yes” in the “Employment Allowance indicator”.
- Send an EPS as normal.
Stopping your claim:
You only need to stop your Employment Allowance claim if you stop being eligible. You do not need to stop your claim manually if you reach the £3,000 limit before the end of the tax year, this doesn’t make you ineligible. If you do stop this claim before the end of the tax year, any credit you have already been given will be removed and you will have to pay any Class 1 NI due.
When to claim?
You can claim at any time in the tax year. If you claim late and you don’t use your Employment Allowance against Class 1 National Insurance you have already paid to HMRC you can ask them to offset it against other liabilities e.g. Corporation Tax and VAT. If you have no outstanding liabilities you can also ask them to refund it directly to you.
If you were eligible, you can claim unused Employment Allowance for up to 4 previous years. Currently you can claim back the allowance from when it was first introduced in 2014.
If you need any further guidance HMRC’s employer guide to Employment Allowance is a very useful resource https://www.gov.uk/government/publications/employment-allowance
If you have any questions on the above or would like any more information, please feel free to contact us on 0116 242 3400.
Polly Dennis, Payroll Apprentice