The employment allowance was introduced from 6 April 2014, to provide some relief to small businesses from the payroll tax known as employers’ class 1 NIC. Although the emphasis was on small businesses, the employment allowance is available to all sizes of businesses, with some exceptions.
If for any reason you have not claimed the allowance that was introduced in 2014/15 all is not lost. If you haven’t, and you are eligible, the claim should be made by submitting an Employer Payment Summary (EPS) with the relevant box checked. Remember to indicate on the EPS which tax year the claim refers to. The claim can be submitted up to four years from the end of the tax year for which the allowance applies.
The class 1 NIC paid for the tax year which is covered by the employment allowance will be turned into a tax credit for the business. HMRC will set this tax credit first against the employer’s current and future PAYE liability. The employer can ask HMRC to repay this tax credit, or set it against other taxes, such as corporation tax.
Most payroll software will roll-over the claim for the employment allowance from one tax year to the next, but some payroll software requires the employer to indicate that they are still entitled to the allowance at the beginning of each year. This requirement is easy to miss, because not all software works like that, so check that all the clients you have taken on in the last three years have claimed the employment allowance for each tax year.
One-person companies, where the only employee is a director of that company, can’t claim the employment allowance from 6 April 2016 onwards, but they can make claims for earlier tax years. Where the micro-company employs another person during the tax year the employment allowance is available. It is immaterial that the second employee earns a small amount, perhaps not enough to pay any NIC. The HMRC guidance on this point is wrong, as we explained in our newsletter on 14 April 2016.