Employment Allowance

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000. Read on more below.
  • Author: Siva
  • Last updated: April 5, 2022
  • 2 Minutes
employment allowance

Running a business can be a tricky thing. Understanding all the rules, regulations, rights, and allowances you are eligible for can be a nightmare. One such allowance open to employers is Employment Allowance.

Employment Allowance is a scheme aimed at reducing National Insurance contributions for eligible employers. But how do you know if you are eligible and if you are, how do you make a claim? Read on to find out.

What Is Employment Allowance?

Employment Allowance is a government scheme. It allows eligible employers to reduce their National Insurance liability by a fixed amount each tax year. This reduction isn’t static and changes from tax year to tax year. 

The scheme is designed to support smaller employers with the costs of employing staff. The amount available to claim recently saw an increase after successful lobbying by the FSB (Federation of Small Businesses).

How Much Is Employment Support Allowance?

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000. This means that an eligible business can pay less employers’ Class 1 National Insurance whenever they run payroll. The £4,000 works like a credit that will run down as subsequent payrolls are run. Once a business uses it up (or the tax year ends) the employer will be liable for full contributions.

Can I claim if my National Insurance Liability is less than £4,000?

Yes, you can still claim the allowance if your liability is less than £4,000 for a tax year.

How does Employment Allowance Work?

The £4,000 allowance applies to your business like credit and isn’t restricted to individual employees. Every time you run payroll you will accrue National Insurance contributions, and this will eat into the allowance. So, for example, if your NI bill is £4,500 for the tax year, you’ll only have to pay the £500 excess.

What if I Have More Than One Payroll?

If you have more than one payroll, you can only claim against only one. This forces employees to choose the one they feel it is more effective against. 

How Do You Claim Employment Allowance?

You can claim using most modern payroll software or by using the HMRC’s Basic PAYE tools. You can make a claim for Employment Allowance up to 4 years after the tax year in which the allowance applies. For example, if you want to make a claim for the allowance for 2016-17, you must make a claim by the 5th April 2021. If you miss this 4 year deadline, then you will be unable to receive the credit.

What Is the Eligibility for Claiming Employment Allowance?

To receive Employment Allowance, you must meet the following criteria:

  • You must register as an employer with the HMRC.
  • Your business must be registered as a sole trader, limited company, or partnership.
  • You must have employees on your payroll.
  • If you are a limited company with directors, two or more must earn more than the secondary threshold for Class 1 National Insurance contributions. Additional guidance is available from the HMRC for single-director companies.
  • Your employers’ Class 1 National Insurance liabilities are less than £100,000 for the previous tax year. This does not include off-payroll workers who you do not have to include in any calculations towards the threshold.

Full eligibility criteria and more information are available on the Employment Allowance government website.

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Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams :-)