Employment Allowance is worth up to £3,000 per year, but many employers are not aware that they can claim it. 

It allows certain businesses, who employ people, to reduce their annual National Insurance Contributions by up to £3,000. However, it’s important to note that new rules on the types of businesses eligible to claim the reduction introduced for the 2020/2021 tax year.

Today, we’ve rounded up the basics of what you need to know about Employment Allowance, including if your business is eligible and how you go about claiming.

What is the Employment Allowance?

Introduced in April 2014, the Employment Allowance was brought in to encourage smaller employers to recruit. 

Who can claim Employment Allowance?

Until 5 April 2020, businesses can claim a reduction in the amount of Class 1 National Insurance Contributions they pay. 

Employment Allowance can be claimed by most employers with a liability to pay (secondary) National Insurance Contributions (NIC). 

You’re eligible if you’re a:

  • Sole trader.
  • Partnership.
  • Limited company. 
  • Charity.
  • Organisation with charitable status, such as schools, academies and universities.
  • Community amateur sports clubs.
  • Employer of care or support workers (from 2015/16 onwards).

Please note, these broad categories are limited by several exclusions intended to target the relief.

You’re not entitled to Employment Allowance if you’re a personal service company (PSC) or a managed service company (MSC). 

How can you claim Employment Allowance?

You can claim Employment Allowance at any time during the tax year, as long as your business or charity has employer Class 1 NICs liabilities and is eligible.

You can also claim Employment Allowance for up to four years after the end of the tax year in which the allowance applies.

Your payroll software should have an Employer Payment Summary (EPS) facility, but if it does not, you can use HMRC’s Basic PAYE Tools to claim your Employment Allowance. Find out more about this process on the GOV.UK website.

It’s important to note that you need to keep any records related to your claim for a minimum of three years at the end of the tax year in which you claimed Employment Allowance. You need to be able to show why you were entitled to claim, how much of your allowance was used and what liabilities the allowance covered.

If you’d like to speak with a member of our team about Employment Allowance, or any other tax reliefs, please get in touch with us today