How to Claim the Employment Allowance

The National Insurance Employment Allowance allows certain UK businesses that employ workers, to reduce their annual National Insurance tax by up to a total of £4,000.


The Chancellor announced in the budget of 2020, that the allowance would be increased to this total for the remainder of the tax year 2020/21. However, this is only available to employers whose Class 1 National Insurance liability was less than £100,000 in their previous tax year.


Who is Eligible?


From the 6th April 2020, the Employment Allowance has increased from £3,000 (figure from the 2019/20 tax year) to £4,000 for the 2020/21 tax year. 

Even though most businesses can claim this allowance, there are still some businesses which are exempt: 

  1. You cannot claim the Employment Allowance if you are a company with only one employee paid above the Class 1 National Insurance secondary threshold. 
  2. You are a freelancer or contractor. This is because freelancers and contractors do not pay Class 1 National Insurance.
  3. You employ someone for domestic work such as a gardener or a nanny.
  4. Most of your work is for the public sector. Even though there can be some exceptions for public sector services such as government or local council employment. However, this is worth confirming with Gov resources.


How to Claim?


Depending on the type of your payroll software and system will affect how you can claim for the Employment Allowance. Moreover, running payroll through your own software is a different process to running it through HMRC’s Basic PAYE tools.

The allowance is not given automatically and must be claimed. The claim is made in the summary of the Employment Payment on the chosen payroll software, by putting ‘Yes’ in the Employment Allowance field.

It is important to clearly state your business sector if filling in this section on your own payroll system, and if you do not make or sell goods and services (such as a charity), then you must specify as “State Aid Rules Do Not Apply”.

This allowance only needs to be claimed once for the tax year at any time (however, is advantageous to make the claim as soon as possible). Once it has been claimed it will be available until the allowance has been used up. Any unused balance will be carried forward to the next tax month.


For a full explanation of the National Insurance Employment Allowance then you can access a guide from GOV UK.

If your payroll services are through MCL Payroll and you would like to find out more information then please contact our team today.

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