The new employment allowance (EA) could cut your NI bill by £2,000. HMRC recently published its guide on how and when you can claim it. What’s the full story?
Update. Last year we told you about the EA (Employment Allowance) which employers can set against their NI bills starting from 6 April. There’s now more information on the terms and conditions and, most importantly, what you need to do to claim it.
Who can claim? Most companies can claim the EA even where their only employee is a director. But there are exclusions. If your business is caught by IR35, i.e. it’s a so-called personal service company, you can’t claim the EA in respect of deemed PAYE income. Other excluded employers are government bodies, some businesses which supply services to the government and employers of domestic workers.
One allowance only. You can’t double up on the EA by paying wages through two businesses that are controlled by the same person. Only one of the companies will be entitled to claim the allowance.
How to claim? After you have sent your RTI full payment submission for payrolls run after 5 April you can file an employer payment summary (EPS) specifically to claim the EA. Most payroll software, including HMRC’s Basic PAYE Tools , will be changed to show a “yes/no” indicator asking if you want to, i.e. are entitled to, claim the allowance. If you choose “yes”, an EPS will be generated to submit to HMRC.
Timing. Your payroll software should work out the maximum EA you can claim for the month. The good, and somewhat surprising, news is that the allowance won’t be spread over the tax year but can be knocked off your earliest employers’ NI bill. Example. Say your employers’ Class 1 NI bill is £900 for April, your EA will be used to reduce this to nil. The balance of the EA, in this example £1,100 (£2,000 – £900) will be used against your NI for May and, if anything is left, against your June bill, etc.
HMRC’s guide covers which types of employer can claim the EA. Most will be allowed, including director-only companies. It’s claimed by filing a special employer payment summary for payrolls run after 5 April.