Employment Allowance was first introduced in 2014 and is a form of tax relief that lessens the National Insurance Contributions (NIC) burden for small businesses, as well as charities and amateur community sports clubs.
This allowance only applies to eligible employers to reduces the Class 1 National Insurance liability throughout the tax year, up to the capped limited.
2021/22: £4,000
2022/23: £5,000
Eligibility to Claim
This allowance can be claimed by businesses and charities if the National Insurance liabilities are less than £100,000 in the previous tax year
Employment Allowance cannot be claimed if:
You are a company with only one employee or are a director of that company.
Class 1 National Insurance exceeds the stated limit
If earnings are within IR35 off payroll working rules
An employee who is employed for personal, household, or domestic work (this does not apply to carers or support workers).
How to Claim
This is allowance is primarily done via the payroll software or HMRC Basic PAYE tools.
The breakdown of NIC and the allowance is on form P32, which is generated by the payroll software and summaries the Tax and National Insurance liability for each pay period.
Before running the April monthly payroll, businesses will need to select “Industrial/Other” on their payroll software when opting to claim Employment Allowance. Charites, Carers, amateur sports clubs, etc should opt for “State Aid Rules”.
You will also need to submit an Employment Payment Summary (EPS) via the same software, advising HMRC that the Employment Allowance has been adjusted on payroll for
Claiming for Previous Years
If Employment Allowance has not been claimed previously and can go back 4 tax years.
