Employment Allowance is an allowance for employers against Employers NI – in effect a partial rebate.
At its simplest its a £5,000 deduction (2024/25) from Employers NI costs incurred by employers, however the devil, as always, is in the detail.
Note this applies to Employers NI only. Employees NI always needs to be deducted and paid over in full regardless of amounts.
Although its introduction was advertised widely by the Government, somewhat disingenuously the parallel change of removing Employers SSP recovery wasn’t advertised – Employment Allowance was intended to compensate Employers for this. Briefly under SSP an employee is entitled to £116.75/week (2024/25) for up to 28 weeks, after a 4 day qualifying period. This is paid to Employees by Employers via payroll, but historically most Employers (those classed as “small” in terms of payroll size) could recover all or part of this from HMRC by deduction against PAYE/NI – this recovery was removed alongside the introduction of Employment Allowance. Read more on SSP
Most employers are entitled to the allowance. Significant exceptions are:
- Domestic employers (eg for a Nanny)
- Service Companies in respect of an IR35 deemed payment – more details on excluded employers
- From 2016/17 companies with only one employee who is also a director cannot claim. Where are are two directors, or an employee who is not a director, a claim can be made.
Employment Allowance is taxable as part of business profits.