Are you paying employers’ class 1 national insurance? Here’s how you can save £3,000 each tax year…

The employment allowance was introduced in 2014 under the National Insurance Contributions Act. It is an opportunity for all businesses paying class 1 national insurance, to reduce their national insurance contributions.  A £3,000 allowance is offset against secondary national insurance contributions and is then reclaimed each month via employment payment summaries (EPS). So how do you know if you are eligible?

 You can claim if…

  • You are paying employers’ class 1 national insurance.
  • If you employ a care of support worker.

You can’t claim if…

  • You are the director and the only employee paid above the secondary threshold.
  • You carry out 50% or more of your work in the public sector (e.g. NHS or local councils)
  • You are an employer of domestic and household staff (excluding care and support workers).
  • You are working under the IR35 rules.

How to claim…

  • The employment allowance is claimed through your payroll software.
  • On submitting your EPS to the HMRC select ‘Yes’ in the ‘employment allowance indicator.’ You should then submit the EPS and the amount that you owe to the HMRC then reduces by the amount you are able to claim.
  • You will only need to claim the employment allowance once.
  • If you become ineligible for any of the above reasons, you must change your selection to ‘No’ before submitting the next EPS. If you stop your claim before the end of the tax year, the allowance will be removed, and any class 1 NI will have to be paid.

When to claim…

  • Employment allowance can be claimed at any time during the tax year.
  • If you claim late you can ask for a refund after the end of the tax year if you don’t owe anything, or you can use unclaimed allowance to offset against tax or NI you owe.
  • You can claim the employment allowance for previous tax years (that haven’t already previously been used) if you are a business or charity. You can go as far back as four years so 5th April 2019 will be the last chance to claim the first year’s employment allowance from tax year 2014-2015.

Businesses with more than one PAYE reference can only claim the allowance against one scheme. The same applies for groups of companies and charities, only one company or charity can claim. If this is the case, you should choose the company or scheme that has the higher NI bill so that as much of the allowance can be claimed.

Please note from April 2020 the employment allowance will be restricted to businesses that had an NI bill of under 1,000,000 in the previous tax year!

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