Keen to reduce your NI liability? Employment Allowance may help you save.

Who can claim and who can't? Payroll specialist Tracey Cousins takes a look at the rules surrounding Employment Allowance.

Employment Allowance lets eligible employers reduce their National Insurance liability by up to £4,000 for the tax year. It is designed to support smaller employers with their employment costs. You will pay less employers' Class 1 National Insurance each time you run your payroll, up to £4,000 or the full value of your Class 1 NI contributions if it is less than this figure in the tax year.

As an employer, you can only claim the Employment Allowance for the tax year if your total secondary Class 1 National Insurance contributions are below the threshold of £100,000 in the previous tax year.

In the tax year before you claim, if you have more than one payroll or connected companies, you will need to add the total liabilities for employers' Secondary Class 1 National Insurance contributions for all payrolls or companies. Only if the total liability is under £100,000 can one payroll or company claim the Employment Allowance.

Your Employment Allowance can be claimed through your software each month when you run your payroll. You can claim at any time in the tax year, but the earlier you act, the sooner you will get the allowance.

If you claim late and do not use your Employment Allowance against your employers' Class 1 National Insurance liabilities, you will have to ask HMRC to use any unclaimed allowance at the end of the tax year to pay any tax or NI you owe. This also includes VAT and Corporation Tax. Alternatively, you can have a refund at the end of the tax year.

You can also claim for any previous tax years, backdated up to four years. The Employment allowance was set at £3000.00 between April 2016 and April 2020.

Who cannot claim Employment Allowance?

You cannot claim if any of the following apply:-

• You are a public body or business doing more than half your work in the public sector (for example, local councils and NHS services) - unless you are a charity.
• You are a company with only one employee paid above the Class 1 National Insurance secondary threshold and that employee is also a director.

• Your employees are being employed in a personal capacity (for example cleaners, gardeners or nannies). Since 6 April 2015, this excludes care and support workers

Changes in the tax year

Since tax year 2020-21, employers are required to re-check their eligibility for Employment Allowance and submit a new claim to HMRC each tax year.

If, at the start of the tax year, your company is no longer eligible to claim Employment Allowance, you should stop your claim.

If your company's circumstances change during the tax year – for example, your company has several employees paid above the Secondary Threshold but then the director becomes the only one – the Employment Allowance can still be claimed for that tax year, but should stop for the following year.

If you'd like to speak to one of our payroll experts on any of the issues discussed above, please call us on 0115 955 500 enquiries@pagekirk.co.uk.