Employment Allowance: the breakdown

With the cost of living increasing rapidly over the last year now is a great time to look at what benefits are available to help employers save on costs.  In this blog, we will be concentrating on Employment Allowance- discussing what it is and the eligibility criteria.

What is the Employment Allowance?

The Employment Allowance is a way for eligible employers to save up to £5,000 over the tax year on the Employer’s National Insurance (NIC) payments.

Employer’s NIC is at the expense of the employer, and along with PAYE taxes, is due to be paid to HMRC each month.

Should you be eligible for the employment allowance then your Employers NIC will be covered by HMRC up to a value of £5,000.  This will be deducted from your PAYE bill.

Who qualifies?

To be eligible for the employment allowance you must meet the following criteria:

  • Be a business or charity (this includes community amateur sports clubs)
  • Your employer’s Class 1 NIC liabilities for the previous tax year must be no more than £100,000.

If your business is connected with other businesses, or if you have more than one payroll, the total employer’s NIC for the group must be less than £100,000 and only one company or payroll may claim the employment allowance.

Who cannot claim Employment Allowance?

  • Public bodies or businesses doing more than half of their work in the public sector (local councils, NHS services)
  • Any company where the only employee being paid above the employer’s Class 1 NI threshold is the company director.
  • Employment allowance cannot be claimed on employees who are employed for personal, household, or domestic work (unless they are a care or support worker)
  • Businesses that have exceeded their limit of de minimis state aid for the 3-year period.

State aid limits, also known as financial support from the government, apply to certain businesses – you will have been notified in writing by the government if you have received any state aid and the total value over the 3-year period.

How can I claim Employment Allowance?

You can claim employment allowance easily through your payroll software or HMRC’s Basic PAYE tools by sending an EPS (Employer Payment Submission) to HMRC to let them know you are eligible to claim.

Prior to sending the EPS you will be asked whether state aid applies and in which sector. This needs to be completed before you can send an EPS to HMRC.

When should I claim?

You can claim at any point throughout the year; however, the sooner you claim, the earlier in the year you will benefit from the allowance.

Sending your EPS prior to running your first payroll of the new tax year is an ideal time to claim your allowance for the year. At the beginning of each tax year, you should check if you will qualify for the employment allowance and send your EPS.

Claiming for previous tax years

If you qualified for employment allowance at any point in the last four years (back to the 2018/19 tax year) you can still reclaim those years of employment allowance.

The Employment Allowance rates for previous years are:

2022/23: £5000

2020/21 – 2021/22: £4000

2018/19 – 2019/20: £3000

For the tax years 2018-19 and 2019-20 there were no qualifying caps on employers Class 1 NIC liability to how much state aid you received.

Looking for more information?

Our payroll team are always happy to help with any queries on employment allowance so please get in touch at payroll@ct.me.  More information can also be found on the HMRC website.