Helen Kingdon discusses the changes to the current guidelines for businesses claiming Employment Allowance.
From April 2020 the current guidelines for businesses to be able to claim the Employment Allowance benefits are changing.
Until the end of the 2019/20 tax year, the majority of businesses that employ a worker and incur Class 1 National Insurance have been entitled to claim an offset of this cost against employment allowances.
This was, and will continue to be, subject to a small number of exclusions including:
If you hire a domestic worker which includes cleaners, chauffeurs, cooks, nannies, and those that provide care for the employer and/or their family
If you're a director and the only employee of the company being paid above the Secondary Threshold
The company has only recognised employment income under the IR35 rules.
If you complete more than 50% of your work in the public sector
However, come early April we'll be seeing some new changes to the UK's Employment Allowance criteria, which raises the question...is your business still eligible?
What is the Employment Allowance?
The Employment Allowance (EA) allows select businesses to reduce their National Insurance liability by up to £3,000 where they employ staff. First introduced in April 2014, the allowance is claimed as the liability occurs by reducing the employers' secondary NI when they run the payroll.
What is changing
From April 2020, only firms deemed ‘small employers’ are entitled to claim this benefit. To fit the criteria your 2019/20 Class 1 National Insurance ‘secondary’ (employer contributions) must not surpass a liability of £100,000.
How it works
According to the gov.uk Employment Allowance claiming guidance, EA will “reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has gone or the tax year ends (whichever is sooner).”
With the changes set to happen from 6 April, it’s important to note:
That you can claim up to a maximum of £3,000 per tax year.
For those who pay less than £3,000 a year, you’re still eligible to claim the allowance.
Businesses paying employers’ Class 1 National Insurance are eligible to claim EA; however, there are specific requirements for those with more than one entity. You can find more details for eligibility here.
Should you own more than one business or be deemed part of a group structure, you must add together all relevant Class 1 ‘secondary’ contributions to ensure the £100,000 limit has not been breached.
If above this value no Employment Allowance can be claimed for 2020/21
If below you must choose the business that will benefit most from the £3,000 employer national insurance offset (please note businesses can't split the allowance over multiple PAYE schemes).
As part of the extra checks that will be implemented with these changes, the employer must also check that they have space for the full EA within their relevant de minimis state aid threshold. Further reading on this can be found here.
How will it be applied?
For eligible businesses, the claim will continue to be made through the payroll software under an Employer Payment Summary (EPS). It’s important that your payroll team has a full understanding of these changes moving forward.
Finally, the criteria must be reviewed annually at the start of each tax year to ensure the organisation's status to claim has not changed.
If you're unsure if your business will remain eligible following the introduction of these changes, be sure to get in touch to discuss any questions, concerns or further options you may have.
The content of this post is up to date and relevant as at 24/03/2020.
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