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Employment Allowance

Article ID
11813
Article Name
Employment Allowance
Created Date
1st July 2020
Product
IRIS PAYE-Master, IRIS Payroll Business, IRIS Bureau Payroll, IRIS GP Payroll, IRIS Payroll Professional, Earnie
Problem

Working with employment allowance in payroll.

Resolution

Employment allowance will reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £4,000 (tax year 20/21) has gone or the tax year ends (whichever is sooner).

Step 1. Check your eligibility

  • You can claim Employment Allowance if you’re a business or charity (including community amateur sports clubs) paying employers’ Class 1 National Insurance.
  • You can also claim if you employ a care or support worker
  • You can only claim Employment Allowance for one PAYE scheme.
  • If you’re part of a group, only one company or charity in the group can claim the allowance.

You can’t claim if:

  • If you Employers NI contribution bill for the previous year was over £100,000
  • If that EA claim would push them above the De minimis state aid threshold applicable to their industry sector
  • You’re the director and only paid employee in your company
  • You employ someone for personal, household or domestic work (eg a nanny or gardener) – unless they’re a care or support worker
  • You’re a public body or business doing more than half your work in the public sector (eg local councils and NHS services) – unless you’re a charity
  • You’re a service company with only deemed payments of employment income under ‘IR35 rules’

If you are unsure about your eligibility to claim employment allowance please contact HMRC on 0300 200 3200 for clarification.

For more detailed guidance from HMRC  please click here.

You will also need to select your business sector for the purposes of de minimis state aid, see details here:

https://www.iris.co.uk/support/knowledgebase/kb/12230/


Step 2. Activate the option in your payroll software

Make sure you have activated the employment allowance option in your payroll software. Click your payroll software below for more details:

PAYE-Master
Payroll Business
Bureau Payroll
GP Payroll
Payroll Professional
Earnie

Once you have activated the employment allowance option carry on with your payroll as normal. The allowance reduction to your PAYE remittance will be applied during your month end processes.


Step 3. Report your EA status to HMRC

Once you have activated the employee allowance option you will need to report to HMRC your intention to reduce your class 1 NI contributions. This is reported via the EPS submission which you should sent at the end of month 1 of the tax year. This reports a yes/no status. No employment allowance values go on the EPS, HMRC administer this themselves.

For more details on reporting employment allowance to HMRC click here.

Click here for further employment allowance FAQs

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