Employment Allowance - the eligibility rules you may have missed.

We should probably start with the basics. If you already work within payroll or within the accountancy or bookkeeping space, you have likely already heard of employment allowance but rather than assume (you know what they say when you assume).

Employment Allowance is an annual allowance given by HMRC to offset your employers NIC by up to £5,000 (correct as at 22/23 tax year).

To qualify you just need to let HMRC know at the beginning of each tax year that you are eligible through an EPS (employer payment summary) submission in your payroll software. If you are currently paying employers NIC and you have employees, you are probably eligible.

If this is the first you are hearing about this, don’t panic, you can claim for previous years and there is more information available. If you would like some help getting this sorted, please do reach out, we would be happy to help.

However, this post is for those of you already processing payroll, those who likely already know what employment allowance is and likely to be claiming this for their business or those of their clients.

I know what it is so why do I need to carry on reading?

Since employment allowance began in 2014 (yes it really has been that long!) it has changed A LOT! Not only the amount that can be claimed but the eligibility requirements over the years have closed loop holes and geared the allowance to smaller businesses and not an automatic right to claim. You are too busy to go down memory lane and re-visit all the changes, after all there have been quite a few. (Can you believe it started out at £2,000 for anyone) but I do think it is worth checking your knowledge is up to date and you know about these smaller eligibility requirements so you can check your payrolls are compliant.

If I found an error, what do I do?

Whether you have claimed in error or haven’t yet claimed and you believe yours or your clients business is eligible, you just need to submit an EPS to HMRC through your payroll software to update your eligibility status. You will then either need to repay the underpaid PAYE if you claimed in error or offset the overpaid PAYE liability off future payments due. (Note: If you have no other liability and therefore cannot offset the overpayment, you can call HMRC to request a refund. This can take some time to process).

You can make backdated claims for up to 4 previous tax years. Note the amount you can claim has changed over the tax years so be careful if working in previous tax years:

2016 - 2020 - £3,000

2020 - 2022 - £4,000

2022 - present - £5,000

Final recommendation

At ELS Payroll Associates, we always run through all these checks at the beginning of each tax year for all payrolls we process. We recommend you do the same to ensure nothing has changed.

Was there anything new here that you hadn’t considered before? Did you find this useful? We would love your feedback if blogs like these would be helpful in the future.