Claiming the Employment Allowance

The eligibility criteria for claiming the Employment Allowance are changing in the 2020/21 tax year. You are required to provide additional information in your EPS submissions - more details below.

The employment allowance has increased to £4000 from April 2020

The Employment Allowance was introduced in April 2014, for the purpose of helping businesses and charities by cutting the cost of employment. In April 2016 the allowance was increased from £2000 to £3000 per year and further increased to £4000 in April 2010, for all eligible employers.

Employers with a sole employee who is also a director are not eligible for employment allowance.

The allowance will reduce your employers' (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has gone or the tax year ends (whichever is sooner). PayRun.io will automatically calculate the correct amount of allowance due on the P32 report.

You can only claim against Class 1 National Insurance you’ve paid, up to a maximum of £3,000 each tax year. You can still claim the allowance if you pay less than £3,000 a year.

For further up to date information from HMRC please visit https://www.gov.uk/claim-employment-allowance

How to claim Employment Allowance?

If you are unsure whether you qualify for the Employment Allowance, you should check with HMRC first.

To enable automatic calculation of the employment allowance on the P32 you must set the ClaimEmploymentAllowance property on the Employer to true. Your claim is then reported to HMRC in your next EPS submission.

A PATCH request can be issued to update an existing employer.

curl -X PATCH \
  'https://api.test.payrun.io/Employer/ER001' \
  -H 'Accept: application/xml' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/xml' \
  -d '<?xml version="1.0"?>
<Employer>
 <EffectiveDate>2019-04-06</EffectiveDate>
 <ClaimEmploymentAllowance>true</ClaimEmploymentAllowance>
</Employer>'
curl -X PATCH \
  'https://api.test.payrun.io/Employer/ER001' \
  -H 'Accept: application/json' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/json' \
  -d '{
  "Employer": {
    "EffectiveDate": "2019-04-06",
    "ClaimEmploymentAllowance": true
  }
}'

Changes in 2020/21

The eligibility criteria for claiming the Employment Allowance are changing in the 2020/21 tax year.

For full details from HMRC of the upcoming changes please visit https://www.gov.uk/guidance/changes-to-employment-allowance.

From 6 April 2020 you will only be able to claim if your Class 1 National Insurance bill was below £100,000 in the previous tax year.

Please not this is NOT automatically assessed by PayRun.io.

From 6 April 2020 EA will operate as de minimis state aid. This means it will contribute to the total aid you are allowed to get under the relevant de minimis state aid cap in the relevant 3-year period. As a result HMRC now require employers to report the sector (or sectors) they operate when claiming the employment allowance, this is done via the EPS submission.

A PATCH request can be issued to update an existing employer's state aid sectors.

curl -X PATCH \
  'https://api.test.payrun.io/Employer/ER001' \
  -H 'Accept: application/xml' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/xml' \
  -d '<?xml version="1.0"?>
<Employer>
 <EffectiveDate>2019-04-06</EffectiveDate>
 <ClaimEmploymentAllowance>true</ClaimEmploymentAllowance>
 <HmrcSettings>
	<StateAidSector>Agriculture</StateAidSector>
 </HmrcSettings>
</Employer>'
curl -X PATCH \
  'https://api.test.payrun.io/Employer/ER001' \
  -H 'Accept: application/json' \
  -H 'Api-Version: default' \
  -H 'Authorization: {OAuthHeader}' \
  -H 'Cache-Control: no-cache' \
  -H 'Content-type: application/json' \
  -d '{
  "Employer": {
    "EffectiveDate": "2019-04-06",
    "ClaimEmploymentAllowance": true,
	"HmrcSettings": {
		"StateAidSector": "Agriculture"
	}
  }
}'

You can include multiple sectors by space separating the values e.g. "Agriculture RoadTransport". These changes were released in v19.20.3.315 and can therefore be updated immediately but will have no effect until v20.21.1 is released.

Stopping your claim

If you are no longer eligible, set the Employer property ClaimEmploymentAllowance to false and file an EPS in the tax month. Do not change the ClaimEmploymentAllowance to false if you have reached the allowance limit or you are no longer employing anyone as this will result in your allowance for the tax year being removed and you will become liable for the Class 1 National Insurance.

Making a late claim

In the event you need to make a late claim for Employment Allowance and you have already processed a number of payruns in the tax year you will need rewind and replay the payruns. For more information on correcting mistakes using rewind and replay see this page.