The Employment Allowance scheme (from 6 April 2014 onwards) enables eligible businesses to receive a reduction of up to £3,000 each year on their employer's Class 1 National Insurance Contributions (NICs).
The Employment Allowance is designed to encourage employers to grow their businesses by recruiting more staff. It was aimed at helping small businesses. From April 2020, this allowance will not apply to organisations with an NIC bill of over £100,000. It is estimated that at least 90% of small businesses will still benefit.
Am I eligible for the Employment Allowance?
You can claim the Employment Allowance if you are a business or charity that would otherwise pay employer's NICs. You can also claim if you employ a carer or support worker. You can only claim for one PAYE scheme. This means that if you are part of a group, only one company or charity within that group can claim the allowance.
You cannot claim the allowance if:
- you employ workers to carry out personal, household or domestic work (eg cleaners) unless they are a carer or support worker;
- you are a public body or more than half of your work is for the public sector (unless you are a charity);
- you are a service company with only deemed payments under IR35 rules;
- You are the director and the only paid employee in the company.
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How much is the Employment Allowance worth?
The Employment Allowance is worth up to £3,000 per year.
The allowance would enable a small business to hire the following staff without paying any employer's NICs:
- three adults on the minimum wage; or
- nine 18-20 year olds; or
- one additional adult on an annual salary of £30,371 from 6 April 2019 (£30,163 for 2018/19, £29,903 in 2017/18).
How do I claim the Employment Allowance?
The Employment Allowance can be claimed through your payroll software when you submit an Employment Payment Summary (EPS) to HM Revenue & Customs. You need to select 'Yes' in the 'Employment Allowance' field when you submit your EPS. You only need to do this once and your employer's NICs will be reduced each time you submit an EPS until your allowance has been used up.
If you use HMRC's Basic PAYE Tools to submit your payroll information, you should:
- select the correct name in the 'Employer' menu;
- select 'Change employer details';
- select 'Yes' in the 'Employment Allowance' field;
- submit your EPS.
You can claim the Employment Allowance at any point during the year. If you've claimed late and do not use your full allowance by the end of the tax year against Class 1 NIC already paid, you should contact HMRC to claim any unclaimed allowance towards any other tax or NICs you owe (including VAT or corporation tax). Alternatively, you can claim a refund if you do not owe any tax at all.