Employment Allowance UK: Everything You Need to Know

Businesses can better manage their costs if they know about the different tax relief choices. One of these chances is Employment Allowance UK, which is meant to help eligible businesses pay less in National Insurance. Businesses can lower their Class 1 National Insurance obligations through this plan. This saves them money that can be used to grow the business. However not all employers are eligible, and certain conditions must be met. Benefits, Employment Allowance eligibility, special cases, de minimis state aid limits, and claim limitations will all be covered in this book. By the end, you’ll know how to check to see if your business is eligible and how to make the most of this tax break.

What You’ll Get

Employers who are eligible for Employment Allowance UK can save up to £5,000 a year on their Class 1 National Insurance payments. The allowance means that you don’t have to pay the full amount every time payroll is handled. Instead, the allowance covers these costs until the full £5,000 is used up or the tax year ends, whichever comes first. Not owing more than £5,000 in taxes in a year? You can still make a claim, but only up to the full amount you owe. Any amount that is left over does not carry over to the next year. This relief can cut costs by a lot, which makes it an important benefit for small businesses, nonprofits, and some companies that hire care workers.

Allowance for Work Who is eligible to make a claim?

Making sure you meet the Employment Allowance eligibility requirements before you apply is important. This tax break is for people who:

• Small businesses and charities: Your Class 1 National Insurance liability in the previous tax year must be less than £100,000.
• Community Amateur Sports Clubs (CASCs): You can apply if you run a well-known sports club.
• Employers of Care or Support Workers: You meet the requirements if you hire someone to help or care for you.

Your total Class 1 National Insurance for all of your payrolls must be less than £100,000 if you want to stay qualified. This is true even if each payroll has a different PAYE reference. You may make more than one claim, though. Any company that pays people who aren’t directly working for them (like freelancers who follow IR35 rules) should know that these “deemed payments” don’t count toward the £100,000 limit. If you manage multiple PAYE schemes, the total across all payrolls is considered, and you can only claim Employment Allowance UK on one payroll.

Special Situations: Groups, Multiple Payrolls, and Companies That Are Connected

When certain companies claim Employment Allowance UK, they have to follow extra rules:

• Part of a group: Your company must have less than £100,000 in Class 1 National Insurance if it is part of a group of related businesses or charities. The allowance can only be claimed by one person or thing in the group.
• Running multiple payrolls: The total liability for all payrolls must still be less than the cutoff if you are in charge of more than one PAYE reference. The Employment Allowance UK is something you can ask for, but only for one payroll.
• Off-payroll workers: If you pay freelancers under IR35, their pay is considered a deferred payment and does not affect your eligibility.

De Minimis State Aid Limits

For some businesses, Employment Allowance UK qualifies as de minimis state aid—a form of government financial support. Certain industries face limits on the total aid they can receive over three years. If a business surpasses these limits, it cannot claim Employment Allowance UK.

The following sectors have specific thresholds:

Businesses must add up all the de minimis help they’ve gotten in the last two years and the full Employment Allowance amount for this year to see if they are eligible. The business is eligible as long as the total stays below the sector cap. If your business works in more than one area, you may have to follow different rules, which means you need to do a more thorough analysis.

Who Can’t Get an Employment Allowance?

Some companies and employers can’t get Employment Allowance UK. Some of these are:

• Public Sector Organizations: You can’t make a claim if more than half of your work is for the government (NHS, local towns, etc.), unless you are a charity.
• Company with Only One Director: You are not qualified if your business has only one director and no other workers who owe Class 1 National Insurance.
• Personal or Domestic Employers: People who hire people to do housework, like maids or gardeners, can’t make a claim unless the worker is a care or support worker.
• Companies Over the Liability Threshold: If your Class 1 National Insurance liability exceeds £100,000 in the previous tax year, you do not qualify.

Make sure that your business meets all the requirements before you make a claim. If you make false claims, HMRC may reject them or punish you.

When to Claim Employment Allowance UK

For each tax year, you need to file an Employment Allowance UK claim. The sooner you file, the sooner you’ll get your money. You have until the end of the tax year to apply. But waiting too long could mean losing out on savings.

If you claim late and do not use your Employment Allowance UK against your Class 1 National Insurance liabilities, you have options:

• Request HMRC to use the unused allowance to cover any outstanding tax, National Insurance, VAT, or Corporation Tax.
• Ask HMRC for a refund at the end of the tax year if no outstanding balance exists.

The gap between how much Class 1 National Insurance you owe and how much Employment Allowance UK you get for the tax year cannot be refunded.

Claiming for Past Years

You can get Employment Allowance UK for the last four tax years, going all the way back to 2020. For the tax years 2020–2021 and 2021–2022, neither the employer’s Class 1 National Insurance liability threshold nor de minimis state aid limits applied.

Employment Allowance UK rates for past years:

• £5,000 a year from 2022 to 2024
• £4,000 a year from 2020 to 2022

How to Claim Employment Allowance UK

Using Payroll Software

This is what you need to do if you use payment software:

• Select ‘Yes’ in the ‘Employment Allowance indicator’ field when submitting an Employment Payment Summary (EPS) to HMRC.
• If your software lacks this field, use HMRC’s Basic PAYE Tools.

If De Minimis State Aid Rules Apply

If your business is eligible for de minimis state help, you need to do the following:

• When you file your claim, choose the right business area, even if your company is losing money.
• The “Industrial/other” category is the best choice for most companies.
• Choose “State aid rules do not apply” if the rules don’t apply.

Using HMRC’s Basic PAYE Tools

Do these things:

• Click on “Change employer details” in the “Employer” menu.
• Check the box next to the “Employment Allowance indicator” and press “Yes.”
• Check to see if the de minimis rules for state help apply.
• As always, send in your EPS.

If You Make Off-Payroll Payments

If your claim is turned down, you can get help from HMRC’s Employer Helpline.

Stopping Your Claim

If you lose your eligibility, change your next EPS by putting “No” in the “Employment Allowance indicator” box.

But don’t give up on your claim if:

• You spend up to £5,000 before the end of the tax year. It doesn’t mean you can’t get it.
• Don’t hire any more people. You can keep getting your income until the end of the tax year.

Any amount you used for that year will be taken away if you stop the claim early. For any Class 1 National Insurance payments you owe, you must pay them back.

After You’ve Made a Claim

You can start using your Employment Allowance UK as soon as you send in your claim. There are no confirmation letters from HMRC.

What to Expect After Claim Submission

• If you are accepted, your allowance will be given to you immediately.
• If the claim is denied, HMRC will send an automatic message within five business days.

If your Class 1 National Insurance debt from last year included deemed payments worth more than £100,000, you need to let HMRC know.

When Employment Allowance UK Counts as De Minimis State Aid

If you put “business sector” in your claim, HMRC will give you a letter letting you know that your allowance is de minimis state aid. Remember this letter for later use, especially when you apply for other state help programs.