The Employment Allowance is set at a maximum of £3,000 and can be claimed by any business which has a payroll with at least one employee or two directors earning over the secondary earnings threshold. The Allowance is offset against your Class 1 National Insurance contributions due for the month, and therefore reduces the total amount of tax and PAYE owed to HMRC in that month. Importantly, the Employment Allowance cannot be used to reduce employee contributions or tax deductions. Unused Employment Allowance cannot be carried forward into a new tax year.
Some Important Things to Know About Claiming The Employment Allowance
- From 6 April 2020 employment allowance will only be available to employers who pay less than £100,000 per annum in Class 1 National Insurance contributions. The previous tax year is used to assess eligibility for the current tax year’s claim.
- If your company has more than one payroll, you will need to add together the Class 1 NICs for the previous year for each payroll and if they total more than £100,000 no Employment Allowance can be claimed.
- If the Class 1 NIC total comes to less than £100,000 the Employment Allowance can be claimed, bit only on one of the payrolls. Finally, If the full £3,000 cannot be claimed in the full tax year, you can ask HMRC to have the balance set against another payroll scheme within the same business.
- Separate businesses or charities that have a connection (for example if they are under control of the same person) cannot claim the Employment Allowance if the total Class 1 NICs across all of the connected companies totals more than £100,000. However, if the total is less than £100,000 then the Employment Allowance can be claimed on one of the companies. Any unused allowance, however, cannot be transferred to another company.
- Employers cannot claim the Employment Allowance if their payroll is for personal domestic staff employed for the running of a household.
- Owners of a franchise can claim the Employment Allowance. However, if two or more franchises are owned they can only claim on one of them.
- Sole traders and partnerships can claim the Employment Allowance, but only if they have a payroll and employ staff.
- If a business takes over another business, that business cannot use the remaining Employment Allowance for the taken over business but can continue to claim the Employment Allowance for their current business. The Employment Allowance already claimed by the business which has been taken over does not need to be repaid, however.
- If a director is the only employee of a company the Employment Allowance cannot be claimed. If there are two directors on the payroll and they are both earning above the secondary threshold then the Employment Allowance can be claimed.
- If there is one director plus employees earning over the secondary threshold then the Employment Allowance can be claimed.
- If one or more employees do not earn above the secondary threshold the Employment Allowance cannot be claimed. If circumstances change during the tax year which mean that the company becomes eligible to claim the Employment Allowance, then the full £3,000 can be claimed.
Talk to us About the Employment Allowance
The Employment Allowance is worth having. If your business has a payroll ensure you have claimed this Employment Allowance. If you haven’t claimed it, you can make a request to claim it going back a maximum of 4 years.
As the above article shows, there are always some caveats that HMRC add that can sometimes seem a bit lengthy or confusing.
Please call us on 0121 422 0550 or contact us for a free initial chat about the Employment Allowance or anything else payroll related.