National Insurance employment allowance is available to employers that are eligible and is set against the employer’s secondary Class 1 National Insurance liability. For the 2020 Budget, the Chancellor announced that the allowance would be increased to £4,000 for 2020/21. Although, from 6 April 2020, it is only available to employers that had a Class 1 National Insurance liability of less than £100,000.
If an employer has multiple PAYE schemes, then employment allowance can only be claimed in one of the PAYE schemes.
What is the maximum amount of the allowance?
For 2020/21, the National Insurance employment allowance is the lower of:
- Employer’s secondary Class 1 National Insurance liability for the year; and
So, when secondary Class 1 National Insurance liability for the year is greater than the £4,000, the employment allowance is £4,000. It is set against the employer’s Class 1 NI liability until it is entirely used up. It also cannot be set against Class 1A or Class 1B liabilities, only on secondary Class 1.
Is it automatic?
No! It must be claimed. It can be made through employer’s payroll software and is made by putting a ‘Yes’ indicator in the Employment Allowance field once per tax year. Once it has then been claimed it is available until the allowance has been used up and any remaining balance is carried forward to the next tax month.
Whilst the claim can be made at any time in the tax year, it’s best to do it as quickly as you can. If a claim is made too late to enable it to be fully offset against the employer’s secondary Class 1 National Insurance liability, the employer can then ask for a refund from HMRC, providing they do not have any outstanding debts. Alternatively, the unused amount can be set against other tax bills!
Employers that are eligible for employment allowance should remember to claim it for 2020/21 and check they utilised the whole allowance in 2019/20!
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