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.
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?
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.
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.
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).”
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.
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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