Employment Allowance

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.

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.

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.

Select your business sector under ‘de minimis state aid rules’

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 you do not make or sell goods or services, choose ‘State aid rules do not apply’. For example if you’re a charity, an amateur sports club or if you employ a care worker.

If you use HMRC’s Basic PAYE Tools

1. Select the correct name in the ‘Employer’ menu on the home page.
2. Select ‘Change employer details’.
3. Select ‘Yes’ in the ‘Employment Allowance indicator’ field.
4. Answer ‘Yes’ to the ‘Do state aid rules apply?’ question if you sell goods or services. Select the business sectors that apply to you. Otherwise, answer ‘No’ and select ‘State aid rules do not apply’.
5. Send your EPS as normal.

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.

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 up to and including 2020 to 2021, 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.