Policy paper

Employment Allowance increases for National Insurance from April 2022

Published 23 March 2022

Who is likely to be affected

All businesses, charities and community amateur sports clubs eligible for the Employment Allowance, whose secondary Class 1 National Insurance Contributions (NICs) liabilities, and additionally from the 2023 to 2024 tax year onwards Health and Social Care Levy liabilities, are over £4,000 a year.

General description of the measure

This measure increases the maximum Employment Allowance by £1,000 from £4,000 to £5,000 from 6 April 2022. This means eligible businesses, charities and community amateur sports clubs will be able to claim a greater reduction on their secondary Class 1 NICs and from the 2023 to 2024 tax year onwards their Health and Social Care Levy liabilities (secondary Class 1 NICs element).

Policy objective

This measure supports businesses by providing relief of up to £5,000 on their employer secondary Class 1 NICs and Health and Social Care Levy liabilities. Around 495,000 businesses will benefit from this increase, including around 50,000 businesses which will be taken out of paying NICs and the Health and Social Care Levy.

This is in addition to the 620,000 businesses who already do not pay NICs due to the current level of the Employment Allowance

Background to the measure

This was announced at the Spring Statement 2022 for implementation from 6 April 2022.

Detailed proposal

Operative date

This change will have effect from 6 April 2022.

Current law

The Employment Allowance was introduced in 2014 in the National Insurance Contributions Act 2014 and when it was first introduced provided a relief of up to £2,000 per eligible employer.

In April 2015, it was reformed to exclude employers of personal or domestic staff (except care or support workers) and from April 2016, the value of the relief was increased to £3,000 and single director companies were excluded.

In April 2020 the value of the relief was increased to £4,000 and targeted towards employers whose NICs liabilities in the previous tax year were under £100,000.

Proposed revisions

This measure amends section 1(2)(a) National Insurance Contributions Act 2014 to increase the annual maximum amount of Employment Allowance from £4,000 to £5,000.

Employers will not have to do anything extra to claim the additional Employment Allowance.

Summary of impacts

Exchequer impact (£m)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
0	-425	-420	-425	-435	-440

These figures are set out in Table 3.1 of Spring Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Statement 2022.

Economic impact

This measure will reduce employer NICs and Health and Social Care Levy liabilities. It is not expected to have any significant macroeconomic impacts.

The terms used in this section are defined in line with the Office of Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below

Impact on individuals, households and families

This measure is not expected to impact individuals as it affects businesses, charities and community amateur sports clubs eligible for the Employment Allowance, whose secondary Class 1 NICs and Health and Social Care Levy liabilities are over £4,000 a year.

There is expected to be no impact on family formation, stability or breakdown

Equalities impacts

It is not anticipated that there will be impacts on groups sharing protected characteristics

Impact on business including civil society organisations

This measure is expected to have a positive impact on around 495,000 businesses eligible for the Employment Allowance and with secondary Class 1 NICs and Health and Social Care Levy liabilities (secondary Class 1 NICs element) over £4,000 a year by providing relief of up to £5,000 on their employer secondary Class 1 NICs and Health and Social Care Levy liabilities.

Businesses and civil society organisations who claim the allowance through their payroll software will automatically receive the increased allowance, where this has been updated. Approximately a further 50,000 businesses and civil society organisations are expected to be taken out of paying employer NICs and the Levy altogether.

The impact on businesses’ and civil society organisations’ administrative burdens is expected to be negligible.

There are likely to be negligible one-off costs as business and civil society organisations familiarise themselves with the new rules and payroll software is updated. There are not expected to be any ongoing costs.

Customer experience is expected to stay broadly the same because the process for claiming and accessing the Employment Allowance is not changing. Customers will be able to automatically access the additional allowance on application

Operational impact (£m) (HMRC or other)

Operational impacts on HMRC are expected to be negligible.

Other impacts

No other impacts have been identified.

Monitoring and evaluation

The measure will be monitored through information collected on Employment Allowance claims and from NICs receipts.

Further advice

If you have any questions about this change, contact HMRC at: [email protected].

Declaration

The Rt Hon Lucy Frazer QC MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.