The £3,000 employment allowance and how it works

Announced back in the 2013 Budget, the employment allowance now gives employers £3,000 off their annual National Insurance bill (Employer’s National Insurance).

In a nutshell:

• The £3,000 allowance reduces Employer’s National Insurance liability per annum
• It started from the 2014/15 tax year with no end date yet announced
• The allowance is available to every business, charity and CASC (Community Amateur Sports Club)
• The allowance is split for groups of companies/charities
• The guidance on the allowance can be downloaded from the Gov.Uk website.

Eligibility

You can claim Employment Allowance if you’re a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance.

You may be interested to know you can also claim if you employ a care or support worker.

It is important to note: if you have more than one employer PAYE reference, you can only claim Employment Allowance against one of them.

Same goes If you’re part of a group, only one company or charity in the group can claim the allowance.

You can’t claim if:

• you’re the director and the only employee paid above the Secondary Threshold
• you employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker
• you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity
• you’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)

How to claim

To claim through your payroll software, put ‘Yes’ in the ‘Employment Allowance indicator’ field next time you send an Employment Payment Summary (EPS) to HM Revenue and Customs (HMRC).

If you use HMRC’s Basic PAYE Tools:

1. Select the correct name in the ‘Employer’ menu on the home page.
2. Select ‘Change employer details’.
3. Select ‘Yes’ in the ‘Employment Allowance indicator’ field.
4. Send your EPS as normal.

You only need to claim Employment Allowance once. Your claim will continue until you stop it.

Stopping your claim

If you stop being eligible, select ‘No’ in the ‘Employment Allowance indicator’ field in your next EPS.

Don’t select ‘No’ just because:

• you’ve reached the £3,000 limit before the end of the tax year – this doesn’t make you ineligible
• you’re no longer employing anyone – wait until the next tax year, then select ‘No’

If you stop your claim before the end of the tax year (5 April), any allowance you’ve been given that year will be removed. You’ll have to pay any employers’ Class 1 National Insurance due as a result.

When to claim

You can claim at any time in the tax year.

If you claim late and don’t use your Employment Allowance against the Class 1 National Insurance you’ve paid, you’ll have to ask HMRC to do one of the following:

• use any unclaimed allowance at the end of the year to pay any tax or National Insurance you owe (including VAT and Corporation Tax if you don’t owe anything on your PAYE bill)
• give you a refund after the end of the tax year if you don’t owe anything

You can see how much Employment Allowance you’ve used in your HMRConline account.

You can claim a £2,000 Employment Allowance for a previous tax year, dating back to 2014 to 2015 if you’re a business or charity – read ‘Claiming Employment Allowance: further employer guidance’ for more information.