NIM06505 | Employment Allowance: Introduction

From HM Revenue & Customs · National Insurance Manual

Section 1 of the National Insurance Contributions Act 2014 (NICA 2014)

What is the Employment Allowance for and how is it applied?

The Employment Allowance was introduced by Section 1 of the NICA 2014. From 6 April 2014 onwards, employers can claim the Employment Allowance in a tax year, provided:

the employer is a secondary contributor during that tax year in accordance with Section 7 of the Social Security (Contributions & Benefits) Act 1992, and
the employer incurred a secondary Class 1 NICs liability during the year of claim

Employers may claim the Employment Allowance at any time during a tax year. It is then applied as a deduction to reduce the amount of secondary Class 1 NICs the employer has to pay HMRC each time they run their payroll until the annual amount of the allowance has been fully claimed, or the tax year has ended (whichever is sooner).

The Employment Allowance is available as an allowance for an employer and not per staff member, so the employer may only reduce their secondary Class 1 NICs liabilities up to the annual amount of the allowance, irrespective of how many persons they employ.

Employers may still claim the Employment Allowance if their total secondary Class 1 NICs liabilities over a tax year fall below the annual amount of the Employment Allowance. In such instances the employer will receive a reduced amount of the allowance equivalent to their total secondary Class 1 NICs liability for that tax year.

If an employer incurs a secondary Class 1 NICs liability during a tax year that equals or exceeds the annual amount of the Employment Allowance, but that employer is unable to utilise the full amount of the Employment Allowance against their total secondary Class 1 NICs liabilities arising that tax year, then they may:

set-off the unused amount of the Employment Allowance against other liabilities owing to HMRC in the same tax year. See (NIM06585).

and/or,

claim a refund of the unused amount of the Employment Allowance direct from HMRC. See (NIM06585).

There are no other ways in which the Employment Allowance can be claimed aside from those described above.

How much Employment Allowance can an employer claim each year?

Since its introduction, the annual amount of the Employment Allowance, which is the maximum that can be claimed each tax year, has been as follows:

2014 to 2015 tax year - £2,000
2015 to 2016 tax year - £2,000
2016 to 2017 tax year - £3,000
2017 to 2018 tax year - £3,000
2018 to 2019 tax year - £3,000
2019 to 2020 tax year - £3,000
2020 to 2021 tax year - £4,000
2021 to 2022 tax year - £4,000
2022 to 2023 tax year - £5,000
2023 to 2024 tax year - £5,000
2024 to 2025 tax year - £5,000
2025 to 2026 tax year - £10,500