The employment allowance is paid to employers where employees work part time due to ill health. There are three main types of employment allowance:
• Class 1 – This covers people who are unable to work because of illness or injury.
• Class 2 – This includes those who are too unwell to work full time, but are still capable of working part time.
• Class 3 – These include self-employed individuals who earn less than £8,105 per annum.
The amount of employment allowance you can claim depends on how much you pay into National Insurance contributions (NIC). You can see what NIC rates apply to your circumstances here.
You can claim employment allowance even if you don’t qualify for statutory sick pay. If you’re entitled to it, you’ll receive it as long as you’ve been off work for more than 14 days.
If you’re claiming employment allowance, you must prove that you’re genuinely unable to work. To do this, you’ll need medical evidence from a doctor or nurse.
You can claim up to 26 weeks’ worth of employment allowance each tax year. However, you can only claim once every five years.
How does Employment Allowance Work?
Employment allowance is paid to workers who are self-employed, employed part-time or full-time, or unemployed. This includes people who work in the public sector and those working for charities.
The amount depends on how much you earn each month and how many hours you work per week. You can’t claim it if you’re earning less than £6,420 a year. If you make more than that, you’ll pay tax on what you earn above £6,420.
You can only claim the allowance for one job at a time. However, you can switch jobs without losing the benefit.
If you’re self-employed, you can claim up to £2,500 a year. Your earnings must exceed £10,400 a year to qualify.
Part-time workers can claim up to £1,850 a year. Full-time workers can claim £3,600 a year.
Unemployed people can claim up to £5,700 a year.
How can I submit an Employment Allowance claim?
Claiming the Employment Allowance can be done quickly and easily online. Simply log into your Payroll Software and follow the instructions to complete the process. If you are unsure how much you are entitled to, please contact us here.
Managing payroll and pensions
Do you want to learn how best practice payroll and pension schemes are run? Then join us for our free one day workshop where we’ll show you how to start managing your own payroll and pensions scheme. You’ll learn about the different types of employers’ liability insurance policies available, and what to look out for when choosing a provider.
We’re offering this workshop because we know how important it is to understand the basics of running a compliant scheme – and we want to make sure that everyone knows what they’re getting into. So whether you’ve just been promoted and want to take over responsibility for your employer’s payroll and pensions, or you’re already responsible for running a small scheme and want to expand, this workshop will give you the skills needed to do it well.
This event is being held at the National Association of Pension Funds Conference Centre, London, on Thursday 12th May 2018.
What is a summary of employment payments?
An Employment Payment Summary (EPS) is a document sent by your employer to HM Revenue & Customs (HMRC). This is one of the most important documents you receive during the recruitment process. You’ll find it in your job offer letter or contract. If you don’t see it, ask your recruiter about it.
The EPS tells you whether you qualify for Employment and Support Allowance (ESA), Income Support (Jobseekers’ Allowance), Universal Credit or another benefit. It also explains what you can claim and how much you owe.
If you are entitled to ESA, the EPS will tell you how much you can earn while you look for work. Depending on the amount you can earn, you might be able to keep some money in your pocket without paying tax.
You won’t be charged anything unless you’ve been overpaid. But you could still face fines if you fail to repay the money you owe.
Do I have to inform HMRC every time?
If you’ve been claiming tax relief for your car since it was first registered, you’ll know how complicated things can become. If you haven’t claimed tax relief for your car, now could be the time to do so. But what happens if you claim relief for one year, and then don’t make another claim for three years? What happens if you claim relief every year? And what about if you claim relief for five years, but stop making claims for four years?
You might think that you’d just keep getting taxed on the same amount as before – but that isn’t always the case. In fact, there are some rules around claiming relief that mean that you could end up paying more tax than you thought.
The good news is that HM Revenue & Customs (HMRC) says that you can claim relief each year without having to worry about losing out on future benefits. However, you must remember to inform HMRC that you want to continue claiming relief within three months of the start of the next tax year. This means that if you stopped claiming relief in 2017, you’d need to notify HMRC by October 31st 2018.
If you fail to notify HMRC that you wish to continue claiming relief, then you’ll no longer be eligible for the benefit. So if you’re planning to claim relief again in 2020, you’ll need to let HMRC know by September 30th 2019.
And even if you do tell HMRC that you want relief, you may find that you’re still liable for additional taxes. For example, if you claim relief for a vehicle worth £10,000, then you’ll pay 20% less income tax on the value of the car. But if you later sell the car for £15,000, then you could owe more tax than you originally thought. To avoid this, you’ll need to ensure that you take into account any capital gains tax liability when calculating whether you’re entitled to claim relief.
So if you want to claim relief for your car, make sure you check the rules carefully. There are lots of different ways that you can claim relief, and you’ll need to understand exactly what you’re allowed to do.
Can I claim for previous years?
If you are claiming for the Earned Limited Allowance (ELA), you can only claim for one year. If you want to claim again next year, you’ll need to do it before 31 December 2020. This includes any part of the current financial year.
You cannot claim for the same year twice. For example, if you claimed for 2017/18, you could not claim for 2018/19.
Your employer will deduct the amount you claim from your pay before paying it to HMRC.
Frequently Asked Questions
What are the rules of Employment Allowance?
The Employment Allowance is an exemption from National Insurance contributions for employers who employ fewer than 20 people. It is paid in addition to the basic rate of income tax.
Unlike other HMRC giveaways (such as the Child Benefit Credit), the Employment Allowance is not one-off; it is simply an allowance you can claim each tax year.
Employers must apply for the allowance each tax year, and there is no upper limit on how much you can claim. However, the total amount you can claim cannot exceed £5,000 per person employed.
There is also no cap on the number of employees eligible for the allowance, although you can’t claim it for yourself.
You can check whether you qualify for the allowance here.
If you do qualify, you’ll receive an annual letter confirming your entitlement.
Why aren’t the self-employed eligible for the Employment Allowance?
The Government announced it would introduce a tax cut for workers earning up to £7,500, including those on zero hours contracts. This means that people working part-time could potentially save thousands of pounds each year. However, this benefit does not apply to self-employed individuals who earn less than £7,500 per annum.
In April 2018, HMRC published a consultation paper outlining proposals to extend the scope of the Employment Allowance (EA). The EA is paid to employers to cover National Insurance contributions (NICs) for employees. However, there is no similar provision for self-employed individuals, who must pay both Class 2 and Class 4 NI.
The EA covers four classes of employment: full-time, part-time, casual and agency. In addition, the EA also applies to anyone who works 20 hours or more per week. However, the EA doesn’t apply to people who work fewer than 20 hours per week, even if they are employed.
For example, someone who earns £5,000 per month working 30 hours per week is covered by the EA because he/she meets the definition of being employed. But someone who earns £5k per month working 10 hours per week isn’t covered by the EA because they don’t meet the definition of being employed—they are self-employed.
This means that if you are a self-employed person earning under £7,500 per year, you won’t qualify for the Employment Allowance, meaning you won’t receive any money towards your annual class 2 and class 4 NI payments.
If you want to find out how much you might be able to save, use our calculator to estimate what you’ll owe in taxes.