The Employment Allowance scheme enables eligible businesses to receive a reduction of up to £4,000 each year on their employer's Class 1 National Insurance Contributions (NICs).
The Employment Allowance is designed to encourage small business employers to grow their businesses by recruiting more staff. The allowance has been restricted to organisations with an NIC bill of less than £100,000 in the previous tax year. It is estimated that at least 90% of small businesses will still benefit.
This restriction means that EA is now falls within EU rules for de minimis state aid. Employers receiving EA will have to add the value of EA to any other de minimis state aid received to ensure the three-year limit for their sector is not exceeded. The limit is set at €200,000 for most businesses.
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 must make a new claim each year (it is no longer automatically carried forward) stating that the total amount of NICs paid was less that £100,000 and the amount of state aid received does not exceed the limit for their trade sector. 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 £4,000 per year.
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.