Employment Allowance

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Many companies and organisations within the UK are entitled to a form of tax relief known as Employment Allowance. This saving scheme has been in effect since April 6 2014, and offers employers a way to lower their National Insurance tax contributions (NICs) to Her Majesty’s Revenue and Customs (HMRC) by up to £2,000.

The introduction of the Employment Allowance scheme will allow over 1.25 million different employers to save thousands of pounds in NICs, with nearly half a million companies not having to pay NICs at all.

Employment Allowance eligibility

Any employer paying less than £2,000 per year to employees does not have to make NICs. Any employer who falls into this category and has been making NICs in the past can often claim these back by contacting HMRC.

Almost every employer paying more than £2,000 in Class 1 National Insurance tax on employees’ and directors’ earnings per year is eligible for Employment Allowance. These employers include:

If you are an employer and believe that you are eligible for Employment Allowance, use the Employment Allowance calculator to see how the Employment Allowance could affect your NICs.

While the vast majority of employers in the UK are eligible for Employment Allowance, there are a small number who are not eligible. These include:

  • Employers who employ someone for personal, household or domestic work, e.g. nanny, gardener, cleaner, unless this employee is a care or support worker.
  • Public bodies doing the majority of their work in the public sector, such as local councils and NHS services. Charities are excluded.
  • Companies with only deemed employment payments under IR35.

How to claim employment allowance

If you believe you are entitled to Employment Allowance and are looking to claim back NICs, you can do so through your standard payroll procedures. The next time you issue an Employment Payment Summary (EPS) to HMRC, enter ‘YES’ in the ‘Employment Allowance indicator’ field.

Another way to claim Employment Allowance is by downloading HMRC’s Basic PAYE tools. Any business that hires fewer than ten employees can use this free software to help them organise and streamline payroll procedures. If you are eligible for Employment Allowance you can arrange reparations through this software.

Employment Allowance is just one of a number of schemes that the government has introduced in order to help small businesses start, grow, develop and ultimately succeed. For more information on how the government is working to make it easier to start a business and help companies thrive, see the latest developments in business enterprise.

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