Employment allowance – a definite NI incentive.

Starting in April 2014 the employment allowance (EA) will be available to all employers with fewer than 250 employees (including directors). It will be worth up to £2,000 per tax year and will be given in the form of a credit against your employers’ NI contributions.

Key facts – who can claim

The Employment Allowance is available from 6 April 2014. If you are eligible you can reduce your employer Class 1 NICs by up to £2,000 each tax year.

You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings.

If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. It is up to you to decide which company or charity will claim the allowance.

You can only claim the £2,000 Employment Allowance against one PAYE scheme – even if your business runs multiple schemes.

Not all businesses can claim the Employment Allowance, see excluded employers for more information.

How to claim your Employment Allowance

You can use your own payroll software (see your software provider’s instructions), or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools to claim the Employment Allowance.

When you make your claim (using the software of your choice), you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000.

Once made, HMRC will automatically carry your claim forward each tax year. So at the beginning of each year you should check your circumstances haven’t changed.

You will be able to see how much of the Employment Allowance you have used in ‘View PAYE Liabilities and Payments’ in HMRCs Online Service.

Exempt employers using HMRC paper returns

If you are exempt from filing, or unable to file online, you can claim the Employment Allowance, at the beginning of the tax year, using the paper Employer Payment Summary (EPS).

More information will be included in guidance provided to all exempt employers.

Excluded employers

You cannot claim the Employment Allowance, for example if you:

• employ someone for personal, household or domestic work, such as a nanny, au pair, chauffeur, gardener, care support worker
• already claim the allowance through a connected company or charity
• are a public authority, this includes; local, district, town and parish councils
• carry out functions either wholly or mainly of a public nature (unless you have charitable status), for example:
  • NHS services
  • General Practitioner services
  • the managing of housing stock owned by or for a local council
  • providing a meals on wheels service for a local council
  • refuse collection for a local council
  • prison services
  • collecting debt for a government department

You do not carry out a function of a public nature, if you are:

• providing security and cleaning services for a public building, such as government or local council offices
  supplying IT services for a government department or local council

Personal and Managed Service Companies who pay contract fees instead of a wage or salary, may not be able to claim the Employment Allowance, as you cannot claim the allowance for any deemed payments of employment income.

Service companies can only claim the allowance, if you pay earnings and have an employer Class 1 NICs liability on these earnings.

The detailed guidance contains more about excluded business types.

More detailed guidance

For more information go to detailed guidance