Presently, the majority of employers are permitted to deduct £3,000 from the cost of employer’s National Insurance, each year. This measure was designed to encourage businesses to take on staff and, as drafted, applies equally to employers of all sizes. From 6 April 2020, changes are to be made to restrict its application.
Every business that has claimed Employment Allowance (EA) in 2019/20 should receive a letter from HM Revenue & Customs setting out the changes but, in summary, the key points are:-
- It will only be available to businesses paying £100,000 or less in employer NI in the previous tax year. For connected businesses, the £100,000 limit considers all connected companies together.
- From 6 April 2020 onwards, the claim for EA will not be automatically carried forward from the prior year. You will need to claim each year, using the tick-box in your payroll software.
- EA cannot be set against NI on deemed employees caught by off-payroll working rules.
- EA will now be classed as “de-minimus state aid’. There is a cap on how much de-minimus state aid a company can claim. The cap is sectoral (euros); Road freight €100,000, Agriculture €20,000, Fisheries €30,000. All other sectors €200,000.
- Examples of de-minimus state aid include co-funding for apprentices and R&D tax credits. You will need to consider what other types of state aid you receive, as EA may impact upon them and vice-versa
- When claiming EA for 2020/21, you have to declare that the de-minimus limits have not been exceeded for the relevant sector(s) for this year and the prior 2 tax years. This is a legal declaration.
- Whether you, a member of your staff or an external party administer your payroll scheme, you all need to be aware of these new changes and criteria to consider if you can claim the allowance.
If you have any questions, please do not hesitate to contact one of our payroll team or your Engagement Partner on 01923 776818.