Employment Allowance

Employment Allowance: up to £2,000 off your Class 1 NICs

The Employment Allowance is available from 6 April 2014. Eligible businesses will be able reduce the amount of employer’s National Insurance Contributions (NICs) by up to £2,000 each tax year. Companies that currently pay less than £2,000 each year in employer’s NICs will therefore completely eliminate their liability.

Every company will still have to deduct employees’ NI and PAYE, but if you claim Employment Allowance part way through the year, the unused allowance can be offset against your PAYE liabilities for the remainder of the year provided that your PAYE liability is fully paid to date.

Eligibility rules

You can claim the Employment Allowance if you are a business or charity that pays employer Class 1 NICs on your employees’ or directors’ earnings. By definition, if you are a sole trader or in partnership and employ no staff, you cannot claim this allowance.

If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. You can only claim the £2,000 Employment Allowance against one PAYE scheme - even if your business runs multiple schemes.

You cannot claim the Employment Allowance, for example if you:

  • employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
  • already claim the allowance through a connected company or charity
  • carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example General Practitioner services

You do not carry out a function of a public nature, if you are:

  • providing security and cleaning services for a public building, such as government or local council offices
  • supplying IT services for a government department or local council

 Claiming Employment Allowance

You can use your own 2014 to 2015 payroll software or HMRC’s Basic PAYE Tools for 2014 to 2015 to claim the Employment Allowance.

When making your claim, you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year. Once made, HMRC will automatically carry your claim forward each tax year. If your circumstances change part way through the year e.g. you start to carry out more than 50% of your activities in the public sector, you must notify HMRC and will have to repay any Employment Allowance previously claimed in that year.

For more information on eligibility and claiming Employment Allowance, please contact us.