Employment Allowance

You could get up to £4,000 a year off your National Insurance bill if you’re an employer. From 6 April 2020 you will only be able to claim if your Class 1 National Insurance bill was below £100,000 in the previous tax year.

What you’ll get

The allowance will reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has gone or the tax year ends (whichever is sooner). You can only claim against Class 1 National Insurance you’ve paid, up to a maximum of £3,000 each tax year. You can still claim the allowance if you pay less than £3,000 a year.

Eligibility

You can claim Employment Allowance if you’re a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance.

You can also claim if you employ a care or support worker. If you have more than one employer PAYE reference, you can only claim Employment Allowance against one of them. If you’re part of a group, only one company or charity in the group can claim the allowance.

You cannot claim if:

  • you’re the director and the only employee paid above the Secondary Threshold
  • you employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker
  • you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity
  • you’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership).

How to claim

To claim through your payroll software, put ‘Yes’ in the ‘Employment Allowance indicator’ field next time you send an Employment Payment Summary (EPS) to HM Revenue and Customs (HMRC).

If you use HMRC’s Basic PAYE Tools:

  1. Select the correct name in the ‘Employer’ menu on the home page.
  2. Select ‘Change employer details’.
  3. Select ‘Yes’ in the ‘Employment Allowance indicator’ field.
  4. Send your EPS as normal.

You only need to claim Employment Allowance once. Your claim will continue until you stop it.

Stopping your claim

If you stop being eligible, select ‘No’ in the ‘Employment Allowance indicator’ field in your next EPS.

Do not select ‘No’ just because:

  • you’ve reached the £3,000 limit before the end of the tax year – this does not make you ineligible
  • you’re no longer employing anyone – wait until the next tax year, then select ‘No’

If you stop your claim before the end of the tax year (5 April), any allowance you’ve been given that year will be removed. You’ll have to pay any employers’ Class 1 National Insurance due as a result.

When to claim

You can claim at any time in the tax year.

If you claim late and do not use your Employment Allowance against the Class 1 National Insurance you’ve paid, you’ll have to ask HMRC to do one of the following:

  • use any unclaimed allowance at the end of the year to pay any tax or National Insurance you owe (including VAT and Corporation Tax if you do not owe anything on your PAYE bill)
  • give you a refund after the end of the tax year if you do not owe anything

You can see how much Employment Allowance you’ve used in your HMRC online account.

Claiming for past years

You can claim Employment Allowance for a previous tax year, dating back to the 2015 to 2016 tax year. Employment allowance was £2,000 before April 2016.

Read Claiming Employment Allowance: further employer guidance for more information.

Changes coming in April 2020 for Employment Allowance (EA)

What is changing?

You will need to make extra checks to work out if you’re eligible and submit a new claim each tax year, as claims will not automatically renew each year.

Employers’ (secondary) Class 1 National Insurance Contributions (NICs) threshold

EA can only be claimed if your total qualifying employers’ (secondary) Class 1 NI Cs liability in the tax year before the year of a claim, was less than £100,000.

Deemed payments

Employer (secondary) Class 1 NI Cs liabilities arising on ‘deemed’ employments (for example, off payroll workers) do not count towards the £100,000 threshold and should be removed from your calculation.

Connected companies

If companies are connected, the total qualifying employers’ (secondary) Class 1 NI Cs liabilities incurred by all of the companies in the group, in the tax year before the year of claim, need to be added together. If that total amount is £100,000 or more, none of the connected companies are eligible to claim. If the total is under the £100,000 threshold, you must decide which one company claims the EA.

More than one payroll

If you have multiple payrolls (or had multiple payrolls in the tax year before the year of claim), all of the qualifying employers’ (secondary) Class 1 NI Cs incurred by each payroll in the tax year before the year of claim should be added together. If the total is £100,000 or greater, you’re not eligible to claim.

EA will be administered as de minimis state aid

EA will be operated as de minimis state aid. De minimis state aid rules apply if businesses engage in economic activity, this means providing goods or services to the market. It does not matter if you do not make a profit, if others in the market offer the same goods or services, it’s an economic activity. In the case of this allowance this will apply to most businesses. This means that, before making a claim, you need to check that receiving the full amount of EA for that year, when added to any other de minim is state aid (if any) already received or allocated in the claim year and previous two tax years, would not result in you exceeding the de minlmis state aid threshold for your trade sector(s). If the total would exceed the threshold(s), you’ll not be eligible to make a claim.

Sector (Economic undertaking) De minlmis threshold/ceiling
Primary production of agriculture products €20,000
Fisheries and aquaculture sector €30,000
Road Freight Transport sector €100,000
Industrial/ Other €200,000

There are some employers, for Instance, charities, community amateur sports clubs, employing someone to provide personal care, who may not be engaging in economic activity and will be outside de minimis state aid rules. These employers will still be eligible for the allowance, but it will not be classed as a de minimis state aid in these circumstances.

Once you make a claim to the EA, and de minimis state aid rules apply to your business, you’ll receive a letter to advise EA has been given under the de minimis state aid scheme, you’ll need to keep this, you may need it if applying for any other de minimis state aid. You do not need to wait for the letter to start using your EA.

If your claim is rejected, a Generic Notification Service (GNS) message will give you the reason, these should be received within 5 days and you’ll need to advise your payroll administrator to remove EA.