Employment Allowance: claim up to £2,000 off your Class 1 NICs

The Employment Allowance is available from 6 April 2014. If you are eligible you can reduce your employer Class 1 NICs by up to £2,000 each tax year.

You can claim the Employment Allowance if you are a business or charity (including Community Amateur Sports Clubs) that pays employer Class 1 NICs on your employees’ or directors’ earnings. If your company belongs to a group of companies or your charity is part of a charities structure, only one company or charity can claim the allowance. It is up to you to decide which company or charity will claim the allowance.

You can only claim the £2,000 Employment Allowance against one PAYE scheme – even if your business runs multiple schemes.

How to claim your Employment Allowance

You can use your own payroll software (see your software provider’s instructions), or HM Revenue and Customs’ (HMRC’s) Basic PAYE Tools to claim the Employment Allowance.

When you make your claim (using the software of your choice), you must reduce your employer Class 1 NICs payment by an amount of Employment Allowance equal to your employer Class 1 NICs due, but not more than £2,000 per year.

For example, if your employer Class 1 NICs are £1,200 each month, in April your Employment Allowance used will be £1,200 and in May £800, as the maximum is capped at £2,000.

Once made, HMRC will automatically carry your claim forward each tax year. So at the beginning of each year you should check your circumstances haven’t changed.

You will be able to see how much of the Employment Allowance you have used in ‘View PAYE Liabilities and Payments’ in HMRCs Online Service.

If you are exempt from filing, or unable to file online, you can claim the Employment Allowance, at the beginning of the tax year, using the paper Employer Payment Summary (EPS).

Excluded employers

Not all businesses can claim the Employment Allowance. Personal and Managed Service Companies who pay contract fees instead of a wage or salary, may not be able to claim the Employment Allowance, as you cannot claim the allowance for any deemed payments of employment income. Service companies can only claim the allowance, if you pay earnings and have an employer Class 1 NICs liability on these earnings. For more information on excluded employers visit the detailed guidance.

BWF members needing advice on tax and employment matters can use our free-to-members business support helplines which includes legal assistance from Wedlake Bell, and employment advice from Croner.