Since 2014, eligible employers have been able to reduce their Class 1 NIC by claiming the Employment Allowance. The Employment Allowance is claimed as part of a company’s HMRC payroll submission. If claimed, employers do not have to pay the first £4,000 of employers national insurance, a significant saving for most businesses.
The good news is that if you have never claimed this before you are able to retrospectively apply for the allowance for the prior 4 tax years, dating back to the 2016 to 2017 tax year. The Employment Allowance for these years was £3,000 per year. Consequently, you may be entitled to £12,000 refund from HMRC in addition to this year’s (2021) relief.
Most small companies are eligible for the Employment Allowance, however there are some special rules alongside the following exceptions:
Exception 1: Class 1 Liability over £100,000
Employers with a secondary employer’s Class 1 NIC liability of £100,000 or more in the prior tax year will not be eligible to claim the Employment Allowance.
The liability should be calculated by considering connected employers. If the connected parties add up to £100,000 or more, none of the employers are eligible.
Exception 2: State Aid
From 6 April 2020, the Employment Allowance is operated as de minimis State aid. This means that employers that already claim de minimis state aid should check that they have a sufficient balance available to be able to claim the Employment Allowance.
If you have received de minimis state aid you should have been notified of this. If you believe you have received de minimis state aid but did not receive a notification, you should clarify this with the administrator of the scheme.
Companies that receive more than their sectors ceiling or would breach the ceiling if the Employment Allowance is granted are not eligible for the Employment Allowance.
For most companies the applicable ceiling is EUR 200,000, however please check the HMRC website to verify this. Please note that the ceiling is based on the cumulative total of current tax year and prior 2.
Exception 3: Single company directors
If only one employee is paid over the Secondary Threshold for Class 1 National Insurance contributions and that employee is a director, the company will not be eligible for the Employment Allowance. Companies with only one employee are also not eligible.