Can you claim the employment allowance?
Jun 11, 2019
The employment allowance exists as an incentive to smaller employers. It was introduced in April 2014, and can be set against your employers’ secondary Class 1 National Insurance Contributions (NICs) bill – up to a value of £3,000 per year. However, changes are afoot which may mean that from April 2020 some employers may no longer be able to claim the employment allowance.
Which employers can currently claim the employment allowance?
If you pay employer secondary NICs then the chances are that you will be eligible to receive the employment allowance. It covers companies, partnerships, sole traders, charities, sports clubs and care providers – but these are broad categories and unsurprisingly there are various restrictions.
For example, restrictions apply if you run a personal service company and you’re affected by IR35 rules, as the allowance only applies if your business has employees in its own right. It’s also not available if you’re the only employee on your payroll and you’re also the director of your company.
Changes coming in April 2020
To add further complexities into the mix, from next April an additional exemption will be added. This will affect employers whose total secondary NICs amount to more than £100,000 during the 2019/20 tax year. If this is the situation, then no allowance will be available the following year (in 2020/21). And every year going forwards, HMRC will assess the value of your NICs in the previous year in order to determine whether you’ll be eligible for the employment allowance.
As an employer you may be very clear whether or not your NICs bill exceeds £100,000. But if your contributions hover around this threshold, it may have an impact on the timing of bonuses or salary increases in that particular year.
The government is expected to release further details on these changes affecting larger employers later in 2019.
Although the employment allowance is a valuable relief for small businesses, it’s worth making sure that you are definitely eligible to claim it – if you get it wrong it can prove pricey. If you have any queries about your entitlement, please get in touch and we’ll be happy to help.