Employment allowance

Produced by Tolley

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Employment allowance
  • Introduction
  • How the employment allowance works
  • Exclusions
  • Activities of a public nature
  • Personal service companies and managed service companies
  • One-person companies
  • Other restrictions
  • How to claim

Employment allowance

Introduction

The employment allowance is available to most employers, reducing their liability to secondary Class 1 national insurance contributions (NIC). This is restricted to those employers with an employer’s NIC liability under £100,000 from 6 April 2020. It is a flat rate reduction in the overall amount that most employers have to pay in secondary NIC in respect of their employees. The employment allowance is set at £4,000 from 2020/21 having previously been £3,000 from 2016/17 onwards and originally £2,000.

In order to better target the employment allowance, it is only be available to small businesses from 6 April 2020 as set out in SI 2020/218. As covered in Employer Bulletin 80 (October 2019):

  1. the previous tax year’s total employers’ (ie secondary) NIC liability must be less than £100,000

  2. claims will need to be submitted every year and cannot be rolled over from one year to the next

When an employee’s pay is more than the secondary threshold, the employer has to pay Class 1 employer NIC in addition to having to deduct Class 1 NIC from the employee’s wages.

YearSecondary threshold (weekly)Secondary threshold (monthly)Secondary threshold (yearly)
2019/20£166£719£8,632
2020/21£169£732£8,788
2021/22£170£737£8,840

The current (2020/21 and 2021/22) rate of secondary NIC due is 13.8% of any amount of the employee’s pay over the Secondary threshold. This secondary contribution is calculated and paid over to HMRC as part of the employer’s normal PAYE operations using the Real Time Information (RTI) system. See the Overview of NIC Classes, rates and thresholds guidance note for more about NIC on employment income.

HMRC has published free-standing guidance on eligibility for the employment allowance and how to claim it, as well as information on how the rules work for connected companies or connected charities.

The vast majority of employers qualify for the employment allowance but it is not available in respect of secondary contributions due on payments made to:

  1. employees of a public

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