Employment allowance

By Tolley
Employment_tax_img

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

  • Employment allowance
  • Introduction
  • How the employment allowance works
  • Exclusions
  • Other restrictions
  • How to claim
  • Future years

Introduction

The employment allowance is available to most employers, reducing their liability to secondary Class 1 national insurance contributions (NIC). It is a flat rate reduction in the overall amount that most employers have to pay in secondary NIC in respect of their employees. When introduced, the employment allowance was set at £2,000 but increased to £3,000 from 2016/17 onwards. The Government set out a range of proposed tax changes in its 2019 election manifesto  including to increase the employment allowance from £3,000 to £4,000. See the Tax planning considerations prior to Budget 2020 news item. The increase to £4,000 was confirmed at Spring Budget 2020 (see Spring Budget 2020 , p 90, para 2,190 and OOTLAR , para 2.12). The government also published a TIIN  in this respect.

It was announced in the Budget 2018 that from April 2020, in order to better target the employment allowance, it will only be available to small businesses. More details were provided in Employer Bulletin 80  (October 2019) confirming that:

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

More on Rates and thresholds: