Can you claim the Employment Allowance for 2021/22?
Can you claim the Employment Allowance for 2021/22?
The Employment Allowance is a National Insurance allowance that enables eligible employers to reduce their employers’ (secondary) Class 1 National Insurance bill by up to £4,000. However, not all employers can benefit – there are some important exclusions.
Eligible employers
To qualify for the Employment Allowance, the employer’s Class 1 National Insurance liabilities for 2020/21 must be less than £100,000. Where the employer is part of a group, the £100,000 limit applies to the group as a whole, not the individual group companies.
The Employment Allowance is not available to companies where the sole employee is also a director. This rules out most personal companies. However, family companies with more than one employee are able to claim.
There are other exclusions too, for example, employers who employ someone for personal, household and domestic work unless the worker is a care or support worker.
Amount of the allowance
The Employment Allowance is set at the lower of £4,000 and the employer’s secondary Class 1 National Insurance liability for the year. Once claimed it is set against the employer’s Class 1 liability until it is used up.
Example
A Ltd is eligible for the Employment Allowance. Its secondary Class 1 National Insurance liability is £1,500 a month. It claimed the Employment Allowance at the start of the 2021/22 tax year. The allowance is used as follows:
Month 1: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £2,500 (£4,000 – £1,500) is carried forward.
Month 2: £1,500 of the Employment Allowance is set against the liability for the month of £1,500, leaving nothing to pay. The remaining Employment Allowance of £500 (£2,500 – £1,500) is carried forward.
Month 3: The remaining £500 of the Employment Allowance is set against the liability for the month of £1,500, leaving £1,000 to pay. The Employment Allowance has now been used in full.
Months 4 to 12: The Employment Allowance has been used in full, so the employer’s Class 1 National Insurance liability for the month of £1,500 is payable in full.
Claiming the allowance
The Employment Allowance is not given automatically and must be claimed each year. This can be done through the payroll software, or via HMRC’s Basic PAYE Tools if the payroll software does not have an Employment Payment Summary (EPS) feature.
Although claims can be made at any time in the tax year, the earlier the claim is made, the earlier the employer will start benefiting from the Employment Allowance.
Claims can also be made retrospectively for the previous four tax years if the employer was eligible for the Employment Allowance, but did not claim it.
Reporting expenses and benefits for 2020/21
Reporting expenses and benefits for 2020/21
Employers who provided taxable expenses and benefits to employees during the 2020/21 tax year will need to report these to HMRC, on form P11D by 6 July 2021, unless the benefit or expense has been payrolled or is included within a PAYE Settlement Agreement. Benefits covered by an exemption do not need to be included.
Where taxable benefits have been provided, the employer must also file a P11D(b) by 6 July 2021. This is the employer’s declaration that all required P11Ds have been filed and also the statutory Class 1A amount.
Exempt benefit
The tax legislation contains a number of exemptions which remove a charge to tax. These may be specific to a particular benefit, such as those for mobile phones and workplace parking, or may be more general, such as the exemption for paid and reimbursed expenses, which applies if the employee would have been entitled to a tax deduction had they met the expense directly.
There are also a number of temporary Covid-19 specific exemptions that apply for the 2020/21 tax year. These include the provision or reimbursement of Covid-19 antigen tests and reimbursed homeworking equipment (such as a computer) to enable the employee to work at home during the pandemic if the equipment would be exempt if made available by the employer.
Remember, exemptions are only available if the associated conditions are met. However, care must be taken here where provision is made under a salary sacrifice arrangement and the alternative valuation rules apply as this may negate the exemption.
Taxable amount
The amount on which the employee is taxed is usually the cash equivalent value. This is calculated in accordance with the benefit-specific rules where these exists, as is the case for company cars, vans, living accommodation and employment-related loans. Where there is not a benefit-specific rule, the cash equivalent is determined in accordance with the general rule. This is the cost to the employer, less any amount made good by the employee. Amounts made good are only deducted where the employee makes good by 6 July 2021.
If the benefit is provided under an optional remuneration arrangement (OpRA), such as a salary sacrifice arrangement, the alternative valuation rules are used to calculate the taxable amount, unless the benefit is one which is specifically excluded from the ambit of those rules (such as childcare vouchers, pension provision and advice, employer-provided cycles and low-emission cars (l75g/km or less) or within the transitional rules for 2020/21. Under the alternative rules, the taxable amount is the salary foregone or cash alternative offered where this is more than the cash equivalent value.
HMRC produce worksheets which can be used to calculate the taxable amount for some benefits. These can be found on the Gov.uk website.
Reporting options
There are various options for filing P11Ds and P11D(b):
• using a payroll software package;
• using HMRC’s Online End of Year Expenses and Benefits Service;
• using HMRC’s PAYE Online Service; or
• filing paper forms.
Whichever method is used, the forms must be filed by 6 July 2021. Employees must be given a copy of their P11D or details of their taxable benefits by the same date.
Any associated employer-only Class 1A National Insurance must be paid by 22 July 2021 if paid electronically, or by 19 July 2021 if paid by cheque.