The Employment Allowance – What You Need To Know
At McDade Roberts we have a dedicated payroll department where you can outsource your payroll headaches to. One headache some clients ask us about is Employment Allowance so read on for more information on what can be a confusing topic for many businesses.
Employers are able to claim the Employment Allowance which reduces their employer Class 1 National Insurance contributions (NICs) by up to £3,000 per year.
The Employment Allowance is available to businesses and charities (including Community Amateur Sports Clubs) that pay employer NICs on earnings of employees or directors.
The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses such as companies under the control of the same person or persons are only entitled to one Employment Allowance between them. However, if a business controls a charity, they are not considered to be connected and the Employment Allowance can be claimed for both the business and the charity.
How to claim
Claims will normally be made using payroll software, either commercial or HM Revenue & Customs' (HMRC's) Basic PAYE Tools. The employer Class 1 NIC liability is reduced to nil until such time as the cumulative reduction reaches £3,000 in the tax year. For example if the employer's NICs are £900 each month, the Employment Allowance used will be £900 in April, £900 in May, £900 in June and £300 in July.
Once an initial claim has been made, HMRC will automatically carry it forward to the next tax year, regardless of any changes in payroll software. Therefore it is important to check at the beginning of each year that there have been no other changes in relevant circumstances.
Employers who are exempt from filing, or unable to file online, can make a claim at the beginning of the tax year using the paper Employer Payments Summary (EPS).
Not all employers can claim the Employment Allowance however. Such employments include:
- Personal, household or domestic work
- Public authorities
- Functions either wholly or mainly (over 50%) of a public nature (unless charities)
- Deemed payments of employment income for personal and managed service companies.
Since April 2016, limited companies with a single director, and no other employees, have not been able to benefit from the allowance.
Access to the Employment Allowance is to be restricted from 2020 to only employers with an employers' NIC liability below £100,000 in their previous tax year. Where employers are connected under the Employment Allowance rules the threshold will apply to their aggregated liability.
Got any questions about Employment Allowance or anything else to do with tax and employing staff? Give our dedicated payroll department a call. We will be happy to help put you on the right path or even sit back and relax while we do it all for you.