The Employment Allowance Scheme was introduced to help businesses grow, boost profitability and take on new employees.
From 6 April 2014, employers have been able to claim back up to £3,000 a year from their Class 1 National Insurance payments, with the majority of the repayments going to small businesses.
Who can claim on the Employment Allowance Scheme?
If you’re a sole trader, or in a partnership and don’t employ any staff, it’s not for you. This allowance is only for employers.
There are exceptions to the list of employers who can claim, including those who employ domestic workers like nannies, gardeners and au pairs, those whose work is more than 50 per cent in the public sector (for the NHS for example). However, some businesses working in the public sector such as IT contractors for government departments, and cleaners and security guards for public buildings, can claim.
Ask your accountant or contact HMRC if you’re not sure of your exact position.
How does it work?
Employers simply reduce their Class 1.
Employers simply reduce their Class 1 NIC bill by up to £3,000 for the month of April (or the first month that they have to pay), then the remainder in subsequent months. So if the business pays £800 a month, then it would pay nothing in April, nothing in May, and £400 in June. Then revert to paying £800 a month from July.
HMRC will store this claim and automatically carry it forward to the next year. It’s the employer’s responsibility to tell HMRC if the business’s circumstances have changed (for example if it begins conducting more than half its work for the public sector).
The allowance cannot be claimed against Class 1A or Class 1B NICs but it applies to employers of any size. If you have multiple PAYE schemes for different parts of a business, you can only claim for one of them (and it can’t switch during a tax year, only from one year to another).
How can I claim for earlier tax years?
You can make a claim for up to four years after the end of a tax year (starting from the 2014 to 2015 tax year).
So to claim for Employment Allowance for the tax year 2014 to 2015, you’d have to claim by 5 April 2019.
HMRC will also allow you to offset a previous year’s unused Employment Allowance against current or future liabilities, so that the allowance isn’t lost. This would apply where, for example, you had claimed Employment Allowance late in the year and didn’t have enough employer Class 1 NIC liability for the rest of the year.
However, you can’t transfer Employment Allowance from one business to another, through a change of ownership. The new ownership would be able to make a claim in its own right, for its existing business.
What happens if my business changes?
If a business changes its operations mid-way through a tax year, taking on a big public sector contract for example, which would make it ineligible for Employment Allowance, it has to stop its claim and repay any Class 1 NICs that were covered by the allowance.
Employers have to keep records of their claim for at least three years after the end of the tax year where Employment Allowance was claimed, showing why they were entitled to claim, how much was used (or repaid) and what liabilities the allowance covered.
The Federation of Small Businesses (FSB) has surveyed its members and found that 29 per cent of them plan to use the £2,000 allowance to raise wages for existing staff. A further 28 per cent intend to take on additional employees.