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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Employment Allowance: Who can’t claim the Employment Allowance? Transfers of business

National Insurance Contributions Act 2014 - section 2, subsections (5) to (9)

If a “business*” (or part of a business) is transferred to a person (P) in a tax year and in that same tax year (P) then incurs liabilities to pay secondary Class 1 NICs for any employed earners who are (wholly or partly) connected with the transfer of the business (or part of the business), then those secondary Class 1 NICs liabilities will be “excluded liabilities” for the purpose of claiming the Employment Allowance.

For this purpose, a transfer of business occurs when a business (or part of a business), is transferred to (P) in a tax year if, in the tax year:

  • another person (Q) is carrying on the business, or part of the business, and
  • in consequence of “arrangements*” involving (P) and (Q), (P) begins to carry on the business, (or part of the business), on or following (Q) ceasing to do so.


For this purpose, “business*” includes:

  • anything which is a trade, profession or vocation for the purpose of the income tax and Corporation tax Acts
  • a property business (as defined in section 263(6) of the Income Tax (Trading and Other Income) Act 2005
  • any charitable or not for profit undertaking or any similar undertaking
  • functions of a public nature


For this purpose, “arrangements*” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).



Company A, an electrical retailer, has 5 employees whose wages incur secondary Class 1 NICs liabilities. Company A claims the Employment Allowance at the beginning of the 2016 to 2017 tax year and 2 months into that tax year the sole director/shareholder of Company A decides to retire and sell the business.


Company B, an electrical installation contractor employing 2 staff, purchases the business from Company A, now adding electrical retail to Company B’s trading activities. The transfer of  ownership of Company A’s  business to Company B takes place on 6 June 2016, when all 5 employees of Company A are transferred over to now be employed by Company B, increasing Company B’s workforce to 7 employees.


From 6 April 2016 to 6 June 2016, Company A incurred secondary class 1 NICs liabilities totalling £1,000. Company A used up £1,000 of its Employment Allowance claim against those secondary class 1 NICs liabilities during that period, leaving an unused balance of the Employment Allowance totalling £2,000.


As an unused amount of the Employment Allowance cannot be transferred from one company to another, Company B cannot now utilise Company A’s unused balance of the Employment Allowance totalling £2,000.


Also, Company B cannot now apply its own existing Employment Allowance claim against the secondary class 1 NICs liabilities arising on the earnings paid to its  5 new employees (transferred from Company A) during the period from the date of transfer (6 June 2016) up until the end of the tax year.


However, from the beginning of the 2017 to 2018 tax year onwards, Company B can claim the Employment Allowance against the secondary class 1 NICs liabilities arising on all of its 7 employees, (including the 5 employees transferred from Company A), up until the annual maximum amount of the Employment Allowance for that tax year has been fully utilised.