Employment Allowance: eligibility and claims -- Top 10 contractor must-knows
The benefit that is the National Insurance Employment Allowance was introduced on April 6th 2014, as a way for smaller employers to save on their Employer’s National Insurance liabilities via PAYE.
Mentioned last week on ContractorUK for being the target of fraudsters, the NI EA has seen several eligibility and amount changes over the past decade, but it still aids many UK-based businesses in 2024-25 despite being a sore spot for one-person contractor limited companies, writes Dan Mepham, managing director of contractor accountancy specialists SG Accounting.
1. Employment Allowance: how much do I get?
As it stands, the current Employment Allowance (EA) covers up to £5,000 of Employer’s NI per tax year, per company, and this threshold resets every April.
There are several criteria for eligibility for the Employment Allowance, and we will cover the key things a contractor with a limited company ought to understand, including where they stand in terms of EA eligibility and how this handy benefit works.
Please note, this £5,000 a year benefit is only for Class 1 Employer’s NI and not for Employee contributions.
2. Employment Allowance eligibility
The key starting point of the criteria is how much your company’s NI bill was for the previous financial year. The Employer’s NI has to have been below £100,000 for the year. If it was over this amount, you will not qualify.
Please be aware that if you have, or are part of, ‘connected’ companies, then only one company can claim the EA. Fortunately, guidance for connected companies is available on gov.uk.
3. EA for connected companies (cont.) and registered charity status
The connected companies must also have a combined Class 1 NI bill of under £100,000 -- still.
For most contractors, the issue of connected companies won’t be applicable but it is worth being aware of, should your working arrangements or director appointments change.
The Employment Allowance benefit can be affected by de minimis state aid. Should this apply to your contractor business, it is definitely worth looking into as to whether it affects your claim.
Again, official guidance is available. But further relating to Employment Allowance eligibility, you cannot claim if your company is classed as a public body, or more than half of the work is done in the public sector (unless you’re a registered charity).
4. So far so good on Employment Allowance eligibility? Start assessing
Once you’ve established whether your company is eligible to claim the £5,000 yearly benefit, you can start to assess who is on the payroll to understand whether you have appropriate earnings levels, and workers, to receive Employment Allowance.
5. Employment Allowance: the one-person limited company preclusion
At this stage, the big stumbling block with EA is the part that will ascertain eligibility for most contractors with limited companies. Specifically, if you are a sole director on the payroll with no other employees earning above the secondary threshold (£9,100 for 2024/25), then you do not qualify.
To qualify for Employment Allowance, you must have a minimum of two directors OR one employee/non-director with earnings above the secondary threshold, to be classed as eligible.
6. Check you’re not among the other EA-disqualified workers
There are also certain workers who don’t qualify; those deemed as being inside IR35, for example, and domestic workers (unless a care or support worker).
7. Remember, your Employment Allowance eligibility isn’t set in stone
You can even claim the EA mid-year. That’s helpful because you may be a sole director (ineligible) in April, but later, in August, employ a worker with the relevant earnings (eligible).
8. Employment Allowance claim to HMRC can include retrospective claims
You can submit the claim and HMRC will credit you for any liabilities for the year to date.
Essentially, if you’re eligible at any point you can claim for the whole year. You can even claim retrospectively if you discover you were eligible in previous years. Here, you’d submit an EPS in the relevant year stating your eligibility and HMRC will credit your PAYE account with any Employers NI paid in that tax year.
9. Consult the official guidance or ring the taxman
If you are ever unsure of your eligibility for Employment Allowance, we would recommend checking the guidance on gov.uk or speaking to HMRC for clarification.
10. Software is your friend (but you’ve got another one too)
In the event you’ve worked out that your limited company is eligible to claim the Employment Allowance, you are largely probably already good to go!
That’s because almost every payroll software has the ability to make the claim for you, insofar as your particulars can be sent to HMRC via an Employment Payroll Summary (EPS), and then the benefit is applied automatically to your payroll’s PAYE calculations.
If you outsource your payroll, your provider will certainly be able to help you. If you run payroll yourself, speak with your software provider and they should be able to assist. If your software does not have the capability, you can always use ‘HMRC Basic PAYE Tools’ (which is free to use). For anything else on the Employment Allowance, ask a knowledgeable, trusted, friendly accountant!
