what is employment allowance

Things you Need to know about Employment Allowance

If you are a UK-based employer and want to reduce your annual National Insurance liability up to £4,000, we have got good news for you!


In this blog post, we’re going to discuss how you can claim employment allowance? Who is eligible for it? And what are the latest updates by HMRC?


Do read this blog from the start to get in-depth knowledge about employment allowance.


What is an Employment Allowance?

An employment allowance helps employers to minimize their National Insurance Bill (NI) up to £4,000 in 2020/21. This decision was taken to aid small businesses to reduce their employment cost. It was £3,000 before, but after successful lobbying by FSB, it was increased to £4,000.


Now, small business employers are going to pay less Class 1 National Insurance contributions (NICs) until they utilize £4,000 in a tax year. They can claim the allowance for the next year if their liability was below £4,000.


In most cases, employers’ have to pay NICs of 13.8% on all earnings and beyond the secondary threshold. And currently, the weekly secondary threshold is £169, monthly £732 and £87,22 annually.


Eligibility for Employment Allowance:

The employment allowance is only for small businesses. If your business paid NICs worth £100,000 or more in the last tax year, you cannot claim this allowance.


If your business is eligible for it, you are given a £4,000 allowance from the Class 1 National Insurance Contributions (NICs) you pay.


You can’t claim it if you are a single employee in a company (even a director) who paid above Class 1 NICs up to £8,788.


Those contractors and freelancers who pay Class 2 and Class 4 NICs are also not eligible for this allowance as they don’t pay Class 1 NICs.


Moreover, if you are having a personal employee for domestic work like a gardener etc, you can’t avail this allowance. 


Those people who’re doing 50% of their job in or for the public sector are also not eligible for this allowance. (conditions applied)


You can get detailed information for eligibility on the Government Website.


How to Claim Employment Allowance?

You can claim employment allowance by telling HMRC that you are eligible for it. It could be done through payroll software and if your payroll software is not providing Employment Payment Summary (EPS) you can use HMRC’s Basic PAYE Tools. You can claim it anytime during a tax year.


 For further information, you can visit the Employment Allowances at HMRC’s website.



Remember, you need to inform HMRC every tax year to ensure your eligibility. When you’re no longer eligible for this allowance, you have to make repayments. 


For additional support, you can get expert advice from our professional accountants regarding employment allowance.

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