Employment Allowance eligibility explained

If you’re an employer, claiming Employment Allowance is a simple way to give your cash flow a boost. However, as with most tax relief schemes, wrapping your head around the Employment Allowance eligibility rules can be rather more complex.

A £5,000 allowance is available against your Class 1 National Insurance employer contributions for the 2022/23 tax year. And with retrospective claims allowed for the preceding four tax years (at the historic rate) there’s a potential £19,000 available for new claimants.

That sounds like good news for your payroll costs, but how do you know if your organisation is eligible for Employment Allowance? In this article, we’ll help you understand:

• Who is eligible for Employment Allowance 2022/23?
• What are the state aid rules and how do they affect your Employment Allowance eligibility?
• Who is not eligible to make a claim?

If you’d like to learn more about what Employment Allowance 2022/23 is and how it works before reading on, you can do that here. Alternatively, you can jump ahead and find out how to make a claim.

Who is eligible for Employment Allowance 2022/23?

An extra £5,000 in the kitty would surely help smooth out cash flow. But how do you know if your organisation is eligible for the allowance?

Under HMRC’s current rules for 2022/23, you can claim Employment Allowance if:

• You’re a business and your employers’ Class 1 National Insurance liabilities for the previous tax year were less than £100,000 (the £100,000 threshold is the key test)
• You’re a charity or community amateur sports club and you meet the £100,000 Class 1 NI liabilities threshold
• You employ a care or support worker and you meet the specific Employment Allowance eligibility criteria for this scenario (find out more about these rules here)

So far, checking your Employment Allowance eligibility seems relatively straightforward. Are you a business, charity, sports club or the employer of a care/support worker? Do you meet the £10,000 NI test? If so, you could be one step closer to maximising this allowance.

But as with many HMRC allowances, there are additional criteria you must meet if you’re going to make a successful claim.

1. Groups can only make a claim against one company

If you’re a large group with several entities in your corporate structure, you might think you could make a claim per company. Unfortunately, groups can only make an Employment Allowance claim against one company in the group. Work out which company is most in need of a cut to its payroll costs and make your claim against this particular entity.

2. Organisations with multiple payrolls can only make one claim

Your organisation might run separate payrolls, each with its own employer PAYE reference. But within HMRC’s rules, you can only make a claim against one of these payrolls. It makes sense to make the claim against the payroll with the biggest labour costs.

3. You can’t include payments made to freelancers and contractors

Any off-payroll payment you make to contractors can’t be included in your NI calculations. Payments to people who fall within the IR35 rules are classed as ‘deemed payments’. Because of this, they can’t be included in the NI totals you claim. If you have a large number of IR35 workers on your payroll, this could undermine the benefits of claiming Employment Allowance.

What are the state aid rules and how do they affect your Employment Allowance eligibility?

So, you’ve battled your way through the Employment Allowance eligibility criteria and come out the other side. But there’s something else you need to factor into your decision-making if you’re thinking of making a claim for the allowance. And that’s de minimis state aid.

State aid is financial support that the Government provides to your organisation. Under the current rules, you can only claim a certain amount of state aid over a rolling three-year period.

If your organisation makes or sells goods and services, you can’t make a claim for Employment Allowance if it would bring you over the de minimis state aid threshold.

Here are the current state aid thresholds (which HMRC calculates in euros) for different sectors:

• Agriculture products: €20,000
• Fisheries and aquaculture: €30,000
• Road freight transport: €100,000
• Industrial sector/Other: €200,000

To check your Employment Allowance eligibility, you’ll first need to work out how much de minimis state aid you’ve received. Then you’ll have to make sure you’re within the de minimis state aid threshold.

If the state aid you’ve received falls below the threshold for your industry, you’re in luck. You can still make your claim for the allowance. If your combined state aid over the three-year period exceeds the threshold, you won’t be able to make a claim.

It’s also worth noting that there are different Employment Allowance eligibility rules for organisations that cover more than one sector. In addition, connected companies must check that the total de minimis state aid for all of the companies in the group doesn’t exceed the threshold for your sector.

Who is not eligible to make a claim?

There are some organisations who won’t be eligible to make a claim. There may also be some people on your payroll who won’t count towards your overall total for Class 1 National Insurance contributions.

Here’s a more exhaustive list of the organisations and people who don’t meet the criteria for Employment Allowance eligibility:

1. You can’t claim if your organisation is a public body
2. You can’t claim if your organisation carries out more than half of its business in the public sector (unless you’re a registered charity)
3. You can’t include employees who fall within the IR35 off-payroll rules in your claim
4. You can’t include someone you employ for personal, household or domestic work (unless that person is a care or support worker)

Part 3: How to claim Employment Allowance 2022/23

In the next instalment of this 4-part series, we’ve put together step-by-step instructions for making an Employment Allowance claim. Your payroll software may be set up to make your claim directly to HMRC. Or you may be able to use HMRC’s Basic PAYE Tools to claim. Head there now for everything you need to know.

Visit our blog for more practical tips for business owners and SMEs or subscribe to get them direct to your inbox. Find out more about Soldo here.