Employment Allowance allows eligible employers to reduce their Employer’s National Insurance Contributions (NIC) by up to £4,000 in a tax year.
The maximum allowance available to your business is £4,000, or the total amount of the Employer’s NIC for the year if this is less than £4,000. For example, if the Employer’s NIC for the year totals £500, this is the maximum amount that can be reclaimed. If however the Employer’s NIC is £4,200, the total reclaim is £4,000 resulting in the remaining £200 being the cost to the business.
Businesses that can and can’t claim
Employment Allowance is available for most employers who pay Class 1 NIC on their employees’ and directors’ earnings; in other words Employer’s National Insurance. This includes businesses, charities and amateur community sports clubs.
There are a small number of businesses and organisations that can’t claim Employment Allowance, such as:
- Those employing domestic workers, e.g. nanny, gardener
- A group of businesses that are, or may appear to be, connected to one another
- An organisation that has more than one payroll scheme
- Payrolls where the director is the only employee on the payroll
- Where the Employer’s NIC liability for 2019/20 was £100,000 or more
Businesses are considered ‘connected’ when:
- One company has control of another company
- Two companies are under the control of the same person(s)
- The same person(s) control two or more charities which share the same purpose and activity
- Two charities belong to a group
- A charity controls a trading business
In these situations, ‘control’ is:
- Where a person has or is entitled to acquire the greater part of the share capital or voting power in a company
- In the event of a distribution of the company’s income, the greater part of the amount distributed
- In the event of distribution of assets, the greater part of the company’s assets
When any of the above ‘connections’ apply, only one of the PAYE schemes involved can claim Employment Allowance. You are free to nominate which PAYE scheme can claim. We recommend nominating a scheme with a large amount of gross salary involved, to ensure you benefit from the allowance in full and as quickly as possible. Please speak to us if you require clarification or more detailed guidance on what ‘connects’ a business or charity.
If your business has more than one PAYE scheme
If your business or charity has more than one PAYE scheme, you can only claim Employment Allowance against one of those schemes as long as the group did not have an Employer’s NIC liability of more than £100,000 for the 2019/20 tax year.
Claiming the allowance
For the company where Employment Allowance is being claimed, the Employer’s NIC is still included on the payroll and we will reduce the liability due to HMRC by the allowance available.
If you have any queries, please get in touch with your usual BKL contact or use our enquiry form.