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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
, see all updates

Debt and return pursuit: PAYE RTI: submissions and charges: Employment Allowance

General

From 6 April 2014, eligible employers are able to claim an allowance against the amount of their Class 1 Employer National Insurance Contributions. It can’t be used against Class 1A or Class 1B NICs liabilities.

Eligibility

Almost every employer who is a business or charity (including a community amateur sports club) that pays employer Class 1 NICs on their employee’s or director’s earnings will be eligible although there are some excluded groups, those that:

  • employ someone for personal, household or domestic work (for example, a nanny or gardener) - unless they’re a care or support worker
  • are a public body or business doing more than half your work in the public sector (for example, local councils and NHS services) - unless you’re a charity
  • are a service company with only deemed payments of employment income under ‘IR35 rules’
  • have a director who is the only paid employee in the company (from 6 April 2016).

If employers are eligible, they claim their allowance using either their own payroll software or HMRC’s Basic PAYE tools (BPT). The claim is made on the Employer Payment Summary (EPS) by entering ‘Yes’ in the ‘Employment Allowance indicator’ field. There is no need for the employer to reclaim their EA each year as once they claim it initially, it will continue to apply until the employer terminates the claim. Terminations are made by submitting an EPS with ‘No’ in the Employment Allowance indicator field.

Employers with more than one payroll can only claim EA for a single payroll, therefore they must decide on which one the claim is to be made.

How much can be claimed

The amount of EA that can be claimed in a tax year can differ from year to year and is dependent on the Chancellor’s Budget.

2014-15 and 2015-16

The maximum amount that employers can claim for the 2014-15 and 2015-16 tax years is £2,000.

2016-17

The Chancellor increased the allowance to £3,000 with effect from 6 April 2016.

Any employer who operates a payroll where they are the director and only employee (single director companies) are no longer entitled to EA after 6 April 2016.

Unused EA claims

Whilst employers with more than one payroll can only claim EA on one PAYE scheme, there are options available to them should their Class 1 Employers NICs fall below the maximum amount of claim. They can ask HMRC to:

  • use any unclaimed allowance at the end of the year to pay any tax or National Insurance you owe (including VAT and Corporation Tax if there is no PAYE owing)
  • give a refund after the end of the tax year providing they do not owe anything else.