Employment allowance: how to claim back National Insurance

If you’re an employer, the employment allowance reduces your secondary Class 1 National Insurance contributions. But you need to claim it, as it isn’t automatically applied.

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What is employment allowance?

The employment allowance is an annual amount businesses can claim towards their employers’ Class 1 National Insurance.

It reduces your liability by up to £5,000 a year. You’ll see a reduction each time you run payroll, until you’ve used up the £5,000 or the tax year ends.

You don’t need to use the entire amount each year, which means you can use the employment allowance even if your employer’s National Insurance liability is less than £5,000.

Am I eligible for employment allowance?

If your employer’s Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, you should be able to claim the employment allowance.

Employment allowance eligibility extends to charities too, including community amateur sports clubs, as well as care and support workers.

Which businesses aren’t eligible for employment allowance?

You can’t claim employment allowance if you’re a company with one employee paid above the Class 1 National Insurance secondary threshold and that employee is also a director of the company.

You can’t include these employees in a claim:

• those with earnings inside IR35 rules (don’t include ‘deemed payments’ to off-payroll workers in your calculations)
• those who work for you in a personal capacity, or for domestic or household work (unless they’re a care or support worker)

Public bodies or businesses that do more than half their work in the public sector can’t claim the employment allowance, unless they’re a charity.

Do you have more than one employer PAYE reference?

HMRC gives every business that registers as an employer a PAYE reference number.

If you’ve got (or have had) more than one, then your total employer’s Class 1 National Insurance liability for the combined payrolls should be less than £100,000 in the last tax year.

How to claim employment allowance

Claiming employment allowance using your own payroll software

If you use payroll software instead of HMRC’s tools, these are the steps to take:

• choose ‘Yes’ in the ‘Employment Allowance indicator’ field when you next send an employment payment summary (EPS) to HMRC
• if it doesn’t have this field, use HMRC’s basic tools (described below)
• you need to choose your business sector for ‘de minimis state aid’ rules, even if you don’t make a profit – most businesses will be under the ‘industrial/other’ category

Claiming employment allowance using HMRC’s Basic PAYE Tools

Basic PAYE Tools is HMRC’s free payroll software for businesses with less than 10 employees:

• choose the right name in the ‘Employer’ menu on the home page
• go to ‘Change employer details’
• choose ‘Yes’ in the ‘Employment Allowance indicator’ field
• choose ‘Yes’ under ‘Do state aid rules apply?’ if you sell goods or services and the sectors that apply to you
• send your EPS

What are state aid rules?

If you sell goods or services, employment allowance is ‘de minimis state aid’ and there’s a limit to how much of this you can get. Businesses in the ‘industrial/other’ category can get €200,000 over three years.

De minimis state aid rules don’t apply to charities, amateur sports clubs, or care workers.

After you claim

You start using your employment allowance as soon as you make a claim. You won’t hear from HMRC unless it’s rejected.

What if I stop being eligible?

You need to choose ‘No’ in the ‘Employment Allowance indicator’ field.

But this is only if you’re no longer eligible – keep in mind that even if you use up your employment allowance, you’re still eligible.

And if you no longer employ anyone, the allowance stops at the end of the tax year, so don’t choose ‘No’.

HMRC removes your allowance if you stop it before the end of the tax year (5 April) and you’ll have to pay the National Insurance that’s due.

When to claim employment allowance

You need to claim employment allowance every tax year – it’s best to do it as early as possible.

You can also claim for previous tax years, if you think you were eligible.

What if I claim late?

If you don’t end up using the allowance against your employer’s National Insurance, you can use the unclaimed amount to pay any outstanding tax or other National Insurance you owe.

If there’s nothing owed on your PAYE bill, you can use it for VAT or corporation tax.

You can also get a refund if you don’t owe any other tax.

Claiming employment allowance for past tax years

You can claim employment allowance for the previous four tax years, going back to 2018-19.

The allowance was £4,000 between 6 April 2020 and 5 April 2022 and £3,000 between April 2016 and April 2020.

You can read more about claiming employment allowance in HMRC’s guidance.

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