NIM06570 | Employment Allowance: How and when to claim the Employment Allowance

National Insurance Contributions Act 2014 - Section 4, subsections (1) to (4) and (11)

Making a claim for the Employment Allowance to HMRC

Employers must make a claim for the Employment Allowance to HMRC via the appropriate method (described below) before they can apply that allowance against their secondary class 1 NICs liabilities. Otherwise the employer does not have a valid claim for the allowance and will be making illegal deductions from the employee’s pay.

Employers must make a claim for Employment Allowance for each tax year. A claim is not carried forward automatically from one tax year to the next.

Employers make a claim for the Employment Allowance through their payroll software. They do this by completing and submitting a Real Time Information - Employer Payment Summary (EPS) to HMRC. The employer must enter “Yes” in the “Employment Allowance Indicator” field of the EPS.

If an employer’s payroll software does not allow the submission of an EPS, then the employer may claim the Employment Allowance via HMRC’s Basic PAYE Toolkit which is free to download from www.gov.uk If the employer is using HMRC’s Basic PAYE Tools, they should:

• select the correct name in the “Employer” menu on the home page

• select “Change employer details”

• select “Yes” in the Employment Allowance Indicator “ field

• submit the EPS as normal

Some employers are exempt from filing RTI returns online. However, they can still claim the Employment Allowance by submitting a paper version of an EPS, which is called a form RT5. The employer must tick the box on the RT5 which asks if they are claiming the Employment Allowance and this box must be ticked every time that employer submits an RT5 to HMRC to ensure the claim continues. The form RT5 can be obtained from HMRC’s stationery and forms Orderline, whose contact details are contained on www.gov.uk The orderline telephone number is 0300 123 1074 (at the time this page of the manual was published).

Employers can use their HMRC online account to see how much of the Employment Allowance has been set against their secondary Class 1 NICs liabilities so far during each year.

When to claim the Employment Allowance (and submitting late claims for earlier tax years)

Eligible employers can claim the Employment Allowance at any time during a tax year.

Employers may also claim the Employment Allowance against closed tax years, provided they have not already claimed the allowance for those years. However, claims for closed tax years are limited to the four tax years falling before the current tax year and no claims can be made for any tax years prior to the 2014 to 2015 tax year (the tax year when the Employment Allowance became available). Claims for earlier tax years must be submitted on an Employer Payment Summary (EPS) with a separate EPS being required for each year of claim. Those EPS don’t need to include previously reported EPS figures (e.g. statutory payments).

Where an employer has submitted a claim for the Employment Allowance one year after the tax year has ended, then that claim will continue into the current tax year, unless there is already a claim in place for the current year. If the current tax year’s PAYE is paid up to date when the claim is made, then HMRC will set the allowance against future PAYE liabilities, unless the employer asks HMRC for a refund.

See also NIM06585 for guidance on what happens if an employer cannot use up the full amount of the Employment Allowance in a tax year (includes guidance on refund claims).