Employment Allowance is used as a credit against an employer’s Class 1 National Insurance liabilities and although has been with us for some time is still worth revisiting. If an employer does not use the entire allowance there is no option to carry forward or to receive other cash credits so the maximum allowance is £5000 or the employer’s annual Class 1 National Insurance liability, whichever is lower eg
An employer has a total liability for the year of £3200, they will receive £3200 of allowance and the remaining £1800 will not be available.
An employer has a total liability of £32000 for they year, they will be able to claim the full £5000 allowance.
Employment Allowance for 2022/2023 tax year
The Employment Allowance for the 2022/23 tax year is £5000, up from £4000 in the previous year. There are some criteria to be eligible for the allowance the simplest of which is that the employer’s Class 1 National Insurance liability should be less than £100 000 in the previous tax year.
If a company is part of a group only one company can claim the allowance. To check the employer’s liability the total liability for the whole group is considered and needs to be below £100 000. The rule is also used if a company has multiple payrolls, only one payroll can receive the allowance and the total liability must be below the £100 000 threshold.
De minimis state aid rules
The de minimis state aid rules seem to cause the most issues. Employment Allowance counts as de minimis state aid and to be eligible to claim the organisation needs to have received less than the relevant sector threshold for their industry. Most of our clients fall into the “Industrial sector / other” catch all having the highest threshold at 200 000 Euros but companies should check their individual circumstances. The thresholds really are in euros and the exchange rate is for the previous tax year.
For groups and multiple payrolls it is the total state aid value that is used and if more than one sector is involved the calculation is more complex.
There are some employers that are excluded from employment allowance. These include single director employers where the director is the only employee and employers of personal, household or domestic workers. Employers of care or support workers can now claim.
Employers also cannot claim if they are a public body or if over half their work is for the public sector. Charities are not excluded and can still claim.
How to Claim
A new claim is required each tax year now and is made via Real Time Information submissions to HMRC, specifically the Employment Payment Summary (EPS). Along with claiming the allowance a declaration also has to be made regarding the de minimis state aid rules. It does not matter when in the tax year the claim is made the full amount will be available against the year to date liability, it is also possible to claim for previous tax years.
Employment Allowance is a very useful £5000 available to use against Employer’s National Insurance liability for many businesses in the UK and should be applied wherever possible. For further information and updates visit HMRC.