Who Can Claim Employment Allowance UK?
As an employer, you will qualify for the Employment Allowance if you pay Class 1 National Insurance and operate any of the following:
- Business (including sole traders, partnerships, and limited companies).
- CASC (Community Amateur Sports Club).
- Charity or other organisation with charitable status (e.g. a school or university).
Note: HM Revenue and Customs (HMRC) provide further guidance for employers who employ care and support workers.
When You Cannot Claim Employment Allowance
The following types of businesses and organisations would not meet the eligibility criteria for Employment Allowance:
- The director of a company with no other employees and the only person paying National Insurance above the Secondary Threshold.
- A Managed Service Company (MSC) or a Personal Service Company (PSC) falling under ‘IR35 legislation‘.
- Health Authority or council and businesses doing more than 50% of their work for the public sector (unless you have charitable status).
- Someone who only employs private domestic staff (e.g. cooks, nannies, gardeners). Some exclusions exist for care or support workers.
Note: You may have more than one employer PAYE reference number. If so, you can only claim against one of them. If your company is part of a group, you can only claim Employment Allowance for one of the companies or charities within the group.
How Much is Employment Allowance?
You can claim up to £3,000 a year off the standard Class 1 National Insurance rates. The tax year runs from the 6th of April to the 5th of April of the following year in the United Kingdom.
If your National Insurance liability is less than £3,000 per year, but you meet all the requirements above, then you can still claim the allowance.
Note: The rules for Employment Allowance change on the 6th of April 2020. Your Class 1 National Insurance bill needs to be below £100,000 in the previous tax year. HMRC provide further guidance on the extra checks you need to make
When to Claim Employment Allowance
Employers who qualify can claim the Employment Allowance at any time during the financial year. There may be occasions where you make the claim late in the financial year and do not use up all your entitlement against the class 1 National Insurance you have paid.
If this is the case, then you have a couple of options. Hence, you will need to ask HMRC to (either):
- Offset any unclaimed allowance you may have at the end of the tax year against National Insurance, VAT, or Corporation Tax that you may be liable to pay.
- Provide you with a refund at the end of the tax year (providing no payments are due against any of the other taxes).
Note: You can check the amount of Employment Allowance you have already claimed by logging into your HMRC online Account
How to Claim Employment Allowance
You only need to claim Employment Allowance one time. Once claimed, it will continue until you stop your claim.
If you use payroll software, all you need to do is to ‘tick’ or press ‘Yes’ in the indicator check box, where it says ‘Employment Allowance’.
If you are using the HMRC Free Basic Tools Software, please follow the following steps:
- On the PAYE Basic Tools homepage, select the correct name in the ‘Employer’ menu.
- Next, select ‘Change Employer Details’
- Then select the ‘Yes’ checkbox in the ‘Employment Allowance Indicator’
- You can then send your Employment Payment Summary (EPS) as normal to HMRC. This will calculate the allowance by automatic process.
Claiming Employment Allowance for Previous Years
You can claim Employment Allowance for past tax years where you had not claimed before. It is possible to claim back to the 2015/16 tax year. Before April 2016, the Employment Allowance rate was £2,000 and not the £3,000 that it is currently.
Stopping a Claim for Employment Allowance
If you find you are no longer eligible to claim Employment Allowance all you need to do is select the ‘No’ box in your Employment Payment Summary (EPS).
Hence, if you select ‘No’ and stop your claim before the end of the current tax year (5th April), you will lose any allowance claimed in that tax year. You will then need to pay employers’ Class 1 National Insurance.
You should NOT stop your claim and tick ‘No’ if:
- You no longer have any employees, wait until the next tax year and then select ‘No’ on the Employment Payment Summary (EPS).
- You have reached the £3,000 per tax year allowance limit. This does not make you ineligible for Employment Allowance.