Employment Allowance: A Comprehensive Overview

What is Employment Allowance?

Employment Allowance is a government initiative that allows eligible employers to reduce their annual Class 1 National Insurance (NI) liabilities by up to £5,000. This allowance is designed to support businesses, particularly small and medium-sized enterprises (SMEs), by lowering employment-related costs.

Are You eligible for Employment Allowance?

For eligibility information, visit the UK Government's Employment Allowance page.

When Should You Start Claiming?

You must claim Employment Allowance every tax year (April 6 to April 5). While you can submit your claim at any point during the tax year, claiming early ensures that you receive the allowance sooner, providing immediate reductions to your NI liabilities.

Impact of Starting to Claim Mid-Year

If you begin claiming Employment Allowance partway through the tax year, it affects your PAYE (Pay As You Earn) bill in the following ways:

• Proportional Reduction: The allowance applies only from the month you start claiming onwards. For example, if you start in Period 7, the allowance will cover Periods 7-12.
• Cumulative Claims: You can still utilize the full £5,000 allowance within the tax year, but only the periods after you start claiming will directly reduce your NI contributions.

Options for Unused Allowance at Year-End

If you have unused Employment Allowance by the end of the tax year, you have two options:

1. Offset Against Other Taxes:

• HMRC can apply the remaining allowance to other tax liabilities you owe, such as VAT or Corporation Tax, provided you have outstanding amounts in these areas.

2. Request a Refund:

• If you do not owe any other taxes, you can request HMRC to refund the unused Employment Allowance. This can be done through your HMRC online account or by contacting HMRC directly.

Updated on: 27/10/2024