Employment Allowance - Changes for April 2020

Since its introduction in April 2014 the Employment Allowance (EA) rules have largely remained unchanged, however for the upcoming tax year rules are changing significantly. Aside from the allowance increasing to up to £4,000 per tax year (was £3,000 in the 2019/20 tax year), the eligibility rules are tightening.

Key changes from 6th April 2020:

• you can only claim EA if your total (secondary) Class 1 National Insurance contributions (NICs) liability is below £100,000 in the previous tax year.

• claims for EA will not automatically renew and you’ll need to make a new claim for EA each year.

• EA will operate as de minimis state aid. Employers must be able accommodate the £4,000 allowance within State Aid limits.

• The allowance can only be claimed once across all your PAYE schemes/connected companies. You’ll need to decide which one to set the claim against.

These new restrictions will make a vast majority of larger business ineligible and therefore unable to avail of the allowance. Given that the EA was introduced to support employers in growing their businesses and hiring new staff, it is not surprising that these changes have been put in place, limiting eligibility to only those that will benefit from it most.

Secondary Class 1 NICs threshold

As mentioned above, if your employer Class 1 NICs exceed £100,000 in the previous tax year you will be unable to claim. This includes multiple payrolls and connected companies.

• Multiple payrolls/PAYE schemes If you have more than one payroll operating in the previous tax year before your claim, you must add together the total secondary Class 1 NICs. If this exceeds the threshold you are not eligible to claim. If the total is under you should decided which one payroll makes the claim.

• Connected companies Where you have connected companies, again you must add together the total secondary Class 1 NICs. If this exceeds the threshold none of the connected companies will be ineligible. If the total is under you should decide which one company makes the claim. Further guidance on connected companies can be found here.

• Deemed payments Any deemed payments that you make, such as those to off-payroll workers, do not count towards the £100,000 total. You cannot claim EA for these workers.

De minimis state aid

From 6th April 2020 the Employment Allowance will operate as de minimis state aid, meaning it will contribute to the total aid you are allowed to get under the state aid cap in the relevant 3 year period. For the purposes of Employment Allowance this period will include de minimis aid received in the previous two years from all sources, plus the year ahead from 6th April 2020.

If a business is participating in other state aid such as tax exemptions they must ensure they still have room for the EA claim within the cap. Any public authority that grants de minimis state aid will provide written evidence of the amount granted so it is important that all records relating to state aid are retained for three years.

Reporting through payroll

Employment Allowance will continue to be claimed through your Employer Payment Summary (EPS). If you are not eligible to claim no action is required as claims will not automatically renew after this tax year.

Employers who are eligible to claim must submit an EPS and answer the numerous additional questions relating to your business sector(s) that have been introduced on the EPS submission.

We will contact all of our clients in the run up to the new tax year to assess eligibility for the new Employment Allowance changes.