The HMRC employment allowance is a contribution from HMRC towards their annual national insurance bill. In this guide, you’ll find out more about the employment allowance rates, how much allowance employers can claim and how to claim for it.
Table of contents
- 1. What is the HMRC Employment Allowance?
- 2. Employment Allowance Rate 2021/2022
- 3. When was the National Insurance Employment Allowance Introduced?
- 4. Who is Eligible to Claim the Employment Allowance
- 5. How to Claim the Employment Allowance
- 6. Claiming Backdated Employment Allowance
- 7. Employment Allowance Rates
- 8. Can You Claim the Employment Allowance with One Employee
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. What is the HMRC Employment Allowance?
The employment allowance lets employers registered with HMRC claim a reduction in their annual Class 1a national insurance liability paid for the employees when they run payroll.
2. Employment Allowance Rate 2021/2022
For 2021/2022, the maximum employment allowance an employer can claim is £4,000.
3. When was the National Insurance Employment Allowance Introduced?
The employment allowance was introduced in 2014 as part of a small reform in the payroll system by HMRC meaning employers were no longer able to claim statutory sick paid to employees back from HMRC. Instead, a blanket allowance was introduced but employers would need to bear the cost of SSP.
4. Who is Eligible to Claim the Employment Allowance
Employers whose total class 1 national insurance bill (that’s employers and employees combined) were less than £100,000 (excluding payments in respect of off-payroll workers) in the previous tax year are eligible to claim the employment allowance.
From April 2016, a limited company is no longer eligible for the employment allowance if the only person on the payroll is a director earning a salary over the Secondary Threshold for Class 1 National Insurance (for the 2021/2022 tax year that is £170 per week).
If there is more than one person on the payroll, but the only person paid over the secondary threshold is a Director, then the business will not be eligible for the employment allowance.
5. How to Claim the Employment Allowance
The employment allowance is usually claimed through the PAYE system using an EPS. The allowance will be deducted from the following tax payment due to HMRC. If this is less than £4,000, the remaining balance will be carried forward to be used against future EPS liabilities.
6. Claiming Backdated Employment Allowance
Employers can claim for backdated employment allowance going back 4 tax years. That means the current cut-off for any backdated claims will be the 2016/2017 tax year. Any backdated claims must be made through RTI by submitting an EPS.
7. Employment Allowance Rates
| Tax Year | Historic Employment Allowance |
|---|---|
| 2014/2015 | £2,000 |
| 2015/2016 | £2,000 |
| 2016/2017 | £3,000 |
| 2017/2018 | £3,000 |
| 2018/2019 | £3,000 |
| 2019/2020 | £3,000 |
| 2020/2021 | £4,000 |
| 2021/2022 | £4,000 |
8. Can You Claim the Employment Allowance with One Employee
Employers with one employee are eligible to claim the employment allowance. However, if the only employee is a Director of the Limited Company paid above the Secondary Threshold for Class 1 National Insurance (for the 2021/2022 tax year that is £8,840 per annum), then the business is not eligible for the employment allowance.
Related:
- Payslips & Payslip Deductions Explained
- The UK Personal Allowance Explained
- Understanding Tax Codes
- National Insurance Explained
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
