Produced by Tolley
  • 25 Mar 2022 09:41

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 small 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 £5,000 from 2022/23, having previously been £4,000 from 2020/21, £3,000 from 2016/17 onwards and originally £2,000.

Since 6 April 2020, as set out in SI 2020/218, it is available if:

  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

Employer Bulletin 80

When an employee’s pay is more than the secondary threshold (see the Overview of NIC Classes, rates and thresholds guidance note), the employer has to pay Class 1 employer NIC in addition to having to deduct Class 1 NIC from the employee’s wages.

Secondary NIC due is due on 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,

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