The Employment Allowance is changing

What is the Employment Allowance?

The UK Government provides an annual allowance of £3,000 to employers, which they can off-set against their employers’ (secondary) Class 1 National Insurance Contributions (NICs).  It was introduced as an incentive for organisations to help recruit their first employees or expand existing work forces in addition to providing a restriction for existing employers.

 

What is changing?

The Government has announced a change to Employment Allowance legislation effective from April 2020.  The allowance will only be available to employers with a secondary (employer’s) NIC liability of £100,000 or less.  The amendment essentially withdraws the allowance for medium to large sized organisations, it is estimated that over 100,000 employers will be affected.  Over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.

An additional complication is that by restricting the allowance to employers with a less than £100,000 secondary NIC’s bill, the allowance will now be classified as State Aid.  Going forward, the rules on de minimis State Aid will need to be considered by employers before claiming Employment Allowance, if it applies to their organisation.  Employers will need to make sure there is availability within their sector’s state aid budget to claim Employment Allowance before they do so.

Which organisations will be able to claim Employment Allowance from next year (2020/2021 tax year)?

  • All businesses and charities paying employers’ NICs with an employer’s NIC’s liability of under £100,000
  • Linked companies with a combined employers’ NICs liability of under £100,000

 

Which organisations will not be able to claim?

  • Employers with a secondary NICs liability of over £100,000
  • Linked companies with a combined secondary NICs liability of over £100,000
  • Single director payrolls where they are the sole employee
  • Employers who have only personal, household, or domestic workers on their payroll, excluding care or support workers
  • Public bodies or businesses doing more than half their work in the public sector, excluding charities
  • Service companies working under ‘IR35 rules’ whose only income is the earnings of the intermediary

 

What should organisations do about the change?

There are five action points for employers to complete which will ensure that compliance obligations are met.  Employers must:

  • Have checked their employer National Insurance liability for the previous tax year was less than £100k
  • They have undertaken relevant checks with any connected businesses to ensure they are eligible for the employment allowance
  • Are the only connected business claiming the Employment Allowance
  • Will not exceed the relevant de minimis ceiling for state aid in their sector if they claim the Employment Allowance
  • They are not aware of any other reason why they may be excluded from claiming the employment allowance

If you have a query about the change to the Employment Allowance, contact the Chiene + Tait Payroll Team today at payroll@chiene.co.uk or call 0131 558 5800.