Employment Allowance: Introduction
National Insurance Contributions Act 2014 - Section 1, subsections (1) to (2) and Section 4, subsection (11).
What is the Employment Allowance for and how is it applied?
The Employment Allowance was introduced by Section 1 of the National Insurance Contributions Act 2014. From 6 April 2014 onwards, employers can claim the Employment Allowance in a tax year, provided:
- the employer is a secondary contributor during that tax year in accordance with Section 7 of the Social Security (Contributions & Benefits) Act 1992, and
- the employer incurred a secondary Class 1 NICs liability during the year of claim
Employers may claim the Employment Allowance at any time during a tax year. It is then applied as a deduction to reduce the amount of secondary Class 1 NICs the employer has to pay HMRC each time they run their payroll until the annual amount of the allowance has been fully claimed, or the tax year has ended (whichever is sooner).
The Employment Allowance is available as an allowance for an employer and not per staff member, so the employer may only reduce their secondary Class 1 NICs liabilities up to the annual amount of the allowance, irrespective of how many persons they employ.
Employers may still claim the Employment Allowance if their total secondary Class 1 NICs liabilities over a tax year fall below the annual amount of the Employment Allowance. In such instances the employer will receive a reduced amount of the allowance equivalent to their total secondary Class 1 NICs liability for that tax year.
If an employer incurs a secondary Class 1 NICs liability during a tax year that equals or exceeds the annual amount of the Employment Allowance, but that employer is unable to utilise the full amount of the Employment Allowance against their total secondary Class 1 NICs liabilities arising that tax year, then they may:
- set-off the unused amount of the Employment Allowance against other liabilities owing to HMRC in the same tax year. See (NIM06585).
- claim a refund of the unused amount of the Employment Allowance direct from HMRC. See (NIM06585).
There are no other ways in which the Employment Allowance can be claimed aside from those described above.
How much Employment Allowance can an employer claim each year?
Since its introduction, the annual amount of the Employment Allowance, which is the maximum that can be claimed each tax year, has been as follows:
- 2014 to 2015 tax year - £2,000
- 2015 to 2016 tax year - £2,000
- 2016 to 2017 tax year - £3,000