Employment Allowance
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1. What you'll get
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000.
You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner).
You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £5,000 each tax year. You can still claim the allowance if your liability was less than £5,000 a year.
2. Check if you're eligible
You can claim Employment Allowance if you’re a business or charity (including community amateur sports clubs) and your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.
You can also claim if you employ a care or support worker.
You can claim Employment Allowance for the previous 4 tax years dating back to the 2018 to 2019 tax year. Some of the rules for claiming are different.
If you’re part of a group
If you’re part of a group of charities or companies (also known as connected companies), the total employers’ Class 1 National Insurance liabilities for the group must be less than £100,000.
Only one company in the group can claim the allowance.
If you have more than one payroll
If you have or had more than one employer PAYE reference, the total employers’ Class 1 National Insurance liabilities for your combined payrolls must be less than £100,000 in the previous tax year.
You can only claim Employment Allowance against one of the payrolls.
If you make off-payroll payments
Payments to off-payroll workers (for example, contractors) are known as ‘deemed payments’. Do not include employers’ Class 1 National Insurance liabilities on deemed payments in your calculations. They do not count towards the £100,000 threshold.
Check if de minimis state aid limits apply to your business
For some businesses, Employment Allowance counts as ‘de minimis state aid’ (financial support from the government). There’s a limit to how much de minimis state aid these businesses can get over a 3 year period. If they exceed the limit, they cannot claim Employment Allowance.
De minimis state aid limits are likely to apply to your business if both of the following are true:
- your business is located in Northern Ireland
- your business makes or sells goods or wholesale electricity
If de minimis state aid limits apply to your business, you must:
- work out how much state aid you’ve received in total
- check that you’re below the limit
You must do this even if your business does not make a profit.
For more information, read the technical guidance on the UK’s international subsidy control commitments, Northern Ireland Protocol section.
Check you’re below the de minimis state aid limit
The limit depends on your business sector. It’s worked out in euros.
| Sector | De minimis state aid limit over 3 years |
|---|---|
| Agriculture products | €20,000 |
| Fisheries and aquaculture | €30,000 |
| Road freight transport | €100,000 |
| Industrial /other | €200,000 |
Work out how much de minimis state aid you’ve received
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Check if you’ve received any de minimis state aid - if so, you should have been told in writing.
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Add the total amount you’ve received or been allocated for the current and past 2 tax years.
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Add this to the full amount of Employment Allowance for the year you’re claiming for. You’ll need to convert this into euros using the exchange rate for the end of the previous tax year. If you’re claiming for 2022 to 2023, you’ll need to use the exchange rate on 30 March 2022: £1 to €1.1826.
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If the total is below the limit for your sector, you’re eligible to make a claim.
If you’re a connected company, the total de minimis state aid for all of the companies in the group must be below the state aid limit for your sector.
The rules are different if your business covers more than one sector.
Who cannot claim Employment Allowance
You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.
You also cannot claim if both of the following apply:
- you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold
- the employee is also a director of the company
Certain employees cannot be included in your claim, such as:
- someone whose earnings are within IR35 ‘off-payroll working rules’
- someone you employ for personal, household or domestic work (like a nanny or gardener) - unless they’re a care or support worker
3. How to claim
How you claim depends on whether you use your own payroll software or HMRC’s Basic PAYE tools.
If you use your own software
To claim through your payroll software, put ‘Yes’ in the ‘Employment Allowance indicator’ field next time you send an Employment Payment Summary (EPS) to HM Revenue and Customs (HMRC).
If your payroll software does not have an Employment Payment Summary field, you can use Basic PAYE Tools.
Check if de minimis state aid rules apply to your business
De minimis state aid rules are likely to apply to your business if both of the following are true:
- your business is located in Northern Ireland
- your business manufactures or sells goods or wholesale electricity
If this is true for you, you must select the business sectors that apply to you, even if you do not make a profit. Most businesses will need to select the ‘Industrial/other’ category, for example a hair salon or restaurant.
If this is not true for you, choose ‘State aid rules do not apply’.
If you use HMRC’s Basic PAYE Tools
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Select the correct name in the ‘Employer’ menu on the home page.
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Select ‘Change employer details’.
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Select ‘Yes’ in the ‘Employment Allowance indicator’ field.
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Answer ‘Yes’ to the ‘Do state aid rules apply?’ question if de minimis state aid rules apply to you. Then select the business sectors that apply to you. Otherwise, answer ‘No’ and select ‘State aid rules do not apply’.
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Send your EPS as normal.
If you make off-payroll payments
If you’re eligible for Employment Allowance but your claim is rejected, you’ll need to call HMRC’s Employer Helpline.
Stopping your claim
If you stop being eligible, select ‘No’ in the ‘Employment Allowance indicator’ field in your next EPS.
Do not select ‘No’ just because:
- you’ve reached the £5,000 limit before the end of the tax year - this does not make you ineligible
- you’re no longer employing anyone - this allowance will stop at the end of the tax year
If you stop your claim before the end of the tax year (5 April), any allowance you’ve been given that year will be removed. You’ll have to pay any employers’ (secondary) Class 1 National Insurance due as a result.
4. When to claim
You need to claim Employment Allowance every tax year.
You can claim at any time in the tax year, but the earlier you claim the sooner you will get the allowance.
If you claim late and do not use your Employment Allowance against your employers’ Class 1 National Insurance liabilities, you’ll have to ask HMRC to do one of the following:
- use any unclaimed allowance at the end of the year to pay any tax or National Insurance you owe (including VAT and Corporation Tax if you do not owe anything on your PAYE bill)
- give you a refund after the end of the tax year if you do not owe anything
You can see how much Employment Allowance you’ve used in your HMRC online account.
Claiming for past years
You can claim Employment Allowance for the previous 4 tax years, dating back to the 2018 to 2019 tax year.
For the tax years 2018 to 2019 and 2019 to 2020, it does not matter how much your employers’ Class 1 National Insurance liability was or how much de minimis state aid you received.
The thresholds for employers’ Class 1 National Insurance and de minimis state aid do not apply.
Employment allowance was:
- £4,000 each year between 6 April 2020 and 5 April 2022
- £3,000 each year between April 2016 and April 2020.
Further information
Read ‘Claiming Employment Allowance: further employer guidance’ for more information.
5. After you've made a claim
You can begin using your Employment Allowance as soon you submit your claim.
HMRC will not send you a confirmation letter for your Employment Allowance.
If your claim is rejected, you will receive an automated message from HMRC within 5 working days.
You may need to tell HMRC if last year’s employers’ Class 1 National Insurance liabilities included deemed payments, taking you over the £100,000 threshold.
When your Employment Allowance counts as de minimis state aid
If you have selected a business sector in your claim, HMRC will send a letter stating that your Employment Allowance counts as de minimis state aid.
You must keep this letter as you may need it if you apply for other de minimis state aid.