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Employment Allowance FAQ

You can now claim up to £3,000 every year against your employer Class 1 NICs liability.


What is the employment allowance?

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The Employment Allowance is available for businesses, charities and Community Amateur Sports Clubs who have employees whose earnings incur an employer secondary Class 1 NICs liability.

The Employment Allowance is up to a maximum of £3,000 every tax year and is available from 6th April 2014 (The maximum employment allowance for 14/15 & 15/16 was £2000, this increased to £3000 for the 16/17 tax year). The Employment Allowance is offset against the employer’s secondary Class 1 NICs liability during a tax year. If the total secondary Class 1 NICs liability is less than £3,000 in a tax year, then the maximum Employment Allowance which can be claimed is the total of the secondary Class 1 NICs liability in that tax year. If the total secondary Class 1 NICs liability is greater than £3,000, then the maximum Employment Allowance which can be claimed is £3,000.

If separate PAYE schemes are related in a group the group can only claim £3000 across all schemes as a total.

Who cannot claim employment allowance?

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The Employment Allowance is not available for:

  • Domestic employers (anyone who employs someone for personal, household or domestic affairs e.g. a nanny, au pair, chauffeur, gardener, care support worker)
  • Public authorities (unless a charity)
  • Businesses whose activities are wholly or mainly of a public nature
  • Employers already claiming through a connected business or charity
  • Personal Service Companies and Managed Service Companies have restricted eligibility (not able to claim in respect of deemed payments of employment income).
  • There are also restrictions relating to business mergers/demergers, transfers and acquisitions

This is not an exhaustive list, please contact the HMRC to confirm your eligibility

How do I activate this in my IRIS payroll software?

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IRIS PAYE-Master
Click the Pay drop down menu across the top toolbar and select Employment Allowance.  Select Yes to turn this feature on.

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IRIS Payroll Business and IRIS Bureau Payroll
Go to Company > Company Details > HMRC tab > tick the Employment Allowance box.

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IRIS Payroll Professional and EARNIE
Go to Company > Alter Company options > tick the Employment Allowance box.

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IRIS GP Payroll
Go to Setup Options > Tax/NI Parameters and select YES for Employment Allowance. 

How is it claimed?

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This is reported to the HMRC via the Employer Payment Summary (EPS).  You only need to send ONE Employer Payment Summary to HMRC.  The XML file sent  will include the Employment Allowance flag so HMRC are aware you are claiming it.  There is no visual indicator on the submission, you just send a "blank" submission.

The value isn't claimed as such but is deducted from the month end payment to the HMRC.  This will be automatically deducted on your month end reports and you pay the reduced amount to HMRC.

Can I claim the Employment Allowance for an earlier tax year?

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You should claim the Employment Allowance as soon as possible after 6 April 2014 using the EPS or Basic PAYE Tools or paper filing process, but businesses and charities who do not claim during the tax year can claim retrospectively. This could be during a tax year for the current tax year or up to 4 previous years after the tax year has ended for the year in which you wish to claim the Employment Allowance. So, a retrospective claim for the Employment Allowance for the 2014-15 tax year, which ends on 5 April 2015 must be made by 5 April 2019. Claims cannot be made for tax years prior to the 2014-15 tax year.

A separate EPS should be submitted for each year when a retrospective is claim made for the Employment Allowance two, three or four years after the tax year has ended. Where an EPS is submitted retrospectively to claim the Employment Allowance one year after the tax year has ended, the claim will continue into the current tax year as long as you don’t have a claim already in place for the current tax year. Retrospective claims to the Employment Allowance will be offset against existing or future PAYE debts unless the employer requests the payment from HMRC.

Where does Employment Allowance appear on the EPS screen?

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Employment allowance status is reported to HMRC via the EPS. The EPS does not include any values for employment allowance, instead it reports a status to HMRC.

When you activate employment allowance the next EPS you send will show the status as "Yes". HMRC do not need to hear anything else about employment allowance until the status changes, as such further EPS submissions (EVEN IF RESENT FOR THE SAME PERIOD) will show the status as "None". If you then deactivate employment allowance the next EPS will show the status as "No".

The employment allowance indicator is visible on the EPS print out options as part of the submission wizard.

How and which reports will document the Employment Allowance?

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The only reports which display the Employment Allowance are the MONTH END reports.  The Employment Allowance will not show on any payslips, company totals, payroll summaries or RTI submissions.   The idea is you simply pay the lesser figure to HMRC  from the month end reports until you reach the £3000 limit.  Once the software has claimed £3000 it will not deduct any further monies.

What happens if I claim it but do not send an EPS?

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It will appear to HMRC as an underpayment and will raise a query with the debt collection agency.

What happens if I have not claimed it from first month of year?

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Employment Allowance indicator can be ticked at any point and included in the next EPS. Month end processing will only work on individual months to calculate the Employer NI Reduction.

Can the Employment Allowance be offset against Class 1A or Class 1B NICs?

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No: the Employment Allowance can only offset an employer’s secondary Class 1 NICs liability. The Employment Allowance cannot be offset against Class 1A and Class 1B NICs, arising from benefits-in-kind or from Pay As You Earn Settlement Agreements with HMRC.

Is the NICs Employment Allowance deducted from employer Class 1 NICs liabilities before other payroll deductions e.g. SSP/SMP?

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Yes. This allows the benefit of the Employment Allowance to be gained as quickly as possible, whilst still enabling employers to apply to HMRC for funding for the statutory payments.

What if the business or charity wants to move the Employment Allowance to another PAYE reference?

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The PAYE scheme nominated to claim the Employment Allowance cannot change during a tax year.

To change the nominated PAYE scheme on which you wish to claim the Employment Allowance you should at the start of the tax year, select you do not wish to claim the Employment Allowance for the PAYE reference for which you had previously claimed the Employment Allowance.

You should then select yes you wish to claim the Employment Allowance for the new tax year on the new PAYE reference

How should a business with one PAYE scheme running more than one payroll (e.g. weekly and monthly or employee and directors payrolls) with different payroll providers claim the Employment Allowance?

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The employer should claim the Employment Allowance against their PAYE reference. The Employment Allowance will be utilised against the total secondary Class 1 NICs until the £3,000 limit is reached, irrespective of how many payrolls are run.

What happens if a business with more than one PAYE scheme doesn’t use the full £3,000 Employment Allowance during the year?

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Where an employer with more than one PAYE scheme qualifies for the Employment Allowance for a tax year and cannot deduct the full amount of the allowance from their nominated PAYE scheme (perhaps because that PAYE scheme has an employer Class 1 NICs liability of less than £3,000) that employer may apply to HMRC for payment of the outstanding balance due up to a maximum of £3,000 after the end of the tax year (provided there is sufficient employer Class 1 NICs liability on the other PAYE schemes).

Will the Employment Allowance be offset against other PAYE liabilities?

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The Employment Allowance can only be used to offset your employer Class 1 NICs liability as shown on your Full Payment Summary (FPS).

However, where a late claim in a tax year (for that tax year) means that there is insufficient Employer Class 1 NICs liability remaining in the tax year to use the full amount of the Employment Allowance due to you this can be offset against other current/future PAYE liabilities so that the benefit of the Employment Allowance is not lost.

Where there is a retrospective claim to the Employment Allowance after the tax year has ended then the amount of Employment Allowance up to the limit of £3,000 or the amount of Employer secondary Class 1 NICs will be offset against existing PAYE debts or current/future PAYE liabilities so that the benefit of the Employment Allowance is not lost. Alternatively, the employer can apply to HMRC for repayment of any balance due.

What if the business changes ownership, before using its full £3,000 Employment Allowance?

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Where this occurs, the unused balance of any claimed Employment Allowance from the business that has been taken over is not available to the business that has completed the takeover. However, the business that has completed the takeover of another business is entitled to the Employment Allowance of £3,000 in the tax year in its own right. Any amount of Employment Allowance used by the business that has been taken over up to the point of its takeover does not have to be repaid by the business completing the takeover, and if not already claimed can be claimed later for the period up to takeover

If I have been charged late payment penalties or interest and then submit a late or retrospective claim to Employment Allowance, will they be reduced?

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No, the penalties and interest will remain as charged, although employers can appeal against the penalty, or object against interest if they feel that they are incorrect.

Where can I find the HMRC Documentation?

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Further information on the allowance, along with guidance on eligibility and how to claim it, can be found via the webpage at: https://www.gov.uk/claim-employment-allowance

Further detailed guidance is available at: https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance

 Activating Employment Allowance in IRIS Payroll Professional & Earnie

 

 Activating Employment Allowance in IRIS Bureau Payroll & Payroll Business

 

 Activating Employment Allowance in IRIS PAYE-Master

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