Employment Allowance

Money sitting on top of a letter from HMRC

In 2020 Employment Allowance eligibility will change. We look at what Employment Allowance is, whether you are eligible and what do you need to do to prepare for the amendment?

What is Employment Allowance?

If you are an employer, you could get up to £3,000 a year off your National Insurance bill. Employment Allowance will reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has gone or the tax year ends (whichever is sooner).

You can claim Employment Allowance if you’re a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance.

You can also claim if you employ a care or support worker.

If you have more than one employer PAYE reference, you can only claim Employment Allowance against one of them.

You can find out more about the allowance on the gov.uk website.


Check you have made the correct deduction

We are at the start of a new tax year so you may want to check that when the first payroll for the year is run, your software has correctly deducted the employment allowance from your employers’ NI bill.


Is this your first year claiming?

If this is the first year you have claimed Employment Allowance, then you’ll need to tick a box in your payroll software to state that you are eligible to claim and also submit an employment payment summary to let H.M.R.C. know.


Changes for tax year 2020/21

From 2020-21, you will only be eligible for Employment Allowance if your businesses or charity had an employers’ NI bill of less than £100,000 in the previous tax year, i.e. 2019/20.

If you are no longer able to claim Employment Allowance in 2020/21, your staff costs will increase by £3,000. Ensure this is accounted for in your financial forecasts.


Further information

If you found this information useful you may also want to check out the following:

Are you now classed as ‘very large’ for Corporation Tax purposes?

Spring Statement 2019 Highlights

Should you buy or rent your business premises?


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