What is the employment allowance?
The employment allowance is a recruitment incentive aimed at smaller employers. It’s worth up to £3,000 per year to set against your employer’s Class 1 NIC bill, making it a valuable allowance that many employers don’t realise they can claim.
This allowance is set to change slightly from April 2020, so this is a good time to review whether you are eligible to claim.
Who can claim?
As long as you employ staff, you’re eligible to claim. This is not a benefit for companies that employ only one director and no other staff. You can usually claim if you’re one of the following and you pay employer (secondary) NIC:
- A sole trader, partnership or company
- A charity, or you have charitable status (including a school, academy or university)
- The employer of some care or support workers (restrictions apply)
- A community amateur sports club
There are some exceptions, which we’ll be happy to go through with you if applicable.
Who can’t claim?
Single director company
If you are the only employee paid above the secondary NIC threshold and you’re also a director of the company, you cannot claim this allowance. This also applies if you have two or more directors but only one director is on the payroll and there are no other employees. But, if you have another employee or director “where a secondary NIC liability arises at some point in the year,” then you can claim the allowance again.
PSCs or MSCs
Personal service companies (PSC) or managed service companies (MSC) involved in IR35 do not generally qualify, although the allowance is still available if the company has employees in its own right.
From 6 April 2020, there will be restrictions to target the relief to smaller employers. If your total secondary NICs are more than £100,000 in 2019/20, then no allowance will be available to you in 2020/21. The availability of the allowance will be reviewed each year against the previous year’s contributions.
If you’re on the cusp of £100,000 in 2019/20, then factors such as the timing of bonuses paid during that year could make a difference. If this is likely to affect you, please ask us for further advice.
The employment allowance can’t usually be claimed by public bodies or businesses that outsource 50% or more of their work from the public sector unless the employer is a charity. It doesn’t affect businesses that supply services like IT or cleaning to public bodies.
If two or more companies or charities are connected because one controls the other, or one person controls them both, the total value of the employment allowance is restricted. In this case, only one of the connected companies can claim the allowance.
This also applies if, for example, one company provides financial support to the other or they share customers, premises or staff. It often happens in the case of married couples who each have their own company which are “commercially interdependent” from each other.
This is a valuable relief for small businesses but does flummox some people. Don’t worry – we’ll take the headache out of deciding whether or not you’re still eligible to claim after next April.