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Employment Allowance Reforms From April 2020

13th Mar 2020

Changes to Employment Allowance rules from April 2020

If you are an existing business that was claiming the Employment Allowance in 2019/20 tax year, you need to know about the reforms coming into effect in April 2020 and check whether under the new rules you still qualify to claim the Employment Allowance (EA).  HMRC is currently writing to businesses about these reforms, please do not forward this letter on to us.  Biznus Payroll is not privy to much of the information surrounding your business finances and de minimis state aid receipts and therefore cannot make the decision to claim EA on your behalf.

We will not claim the EA in 2020/21 until we receive written or email confirmation to make the claim on your behalf; this will be required for each new Tax Year as renewal is no longer automatic.

Before confirming your eligibility to claim with us, please review below the qualifying criteria: –

Employers’ (secondary) Class 1 National Insurance Contributions (NICs) threshold

EA can only be claimed if your total qualifying employers’ (secondary) Class 1 NICs Liability in the tax year before the year of a claim, was less than £100,000.

Deemed payments

Employer (secondary) Class 1 NICs liabilities arising on ‘deemed’ employment (for example, off-payroll workers) do not count towards the £100,000 threshold and should be removed from your calculation.

Connected companies

If companies are connected, the total qualifying employers’ (secondary) Class 1 NICs liabilities incurred by all of the companies in the group, in the tax year before the year of claim, need to be added together.  If the total amount is £100,000 or more, none of the connected companies are eligible to claim.  If the total is under the £100,000 threshold, you must decide which one company claims the EA.

More than one payroll

If you have multiple payrolls (or had multiple payrolls in the tax year before the year of claim), all the qualifying employers’ (secondary) Class 1 NICs incurred by each payroll in the tax year each before the year of claim should be added together.  If the total is £100,000 or greater, you’re not eligible to claim.

EA will be administered as de minimis state aid

EA will be operated as de minimis state aid.  De minimis state aid rules apply if businesses engage in economic activity, this means providing goods and services to the market.  It does not matter if you do not make a profit, if others in the market offer the same goods or services, it’s an economic activity.  In the case of this allowance, this will apply to most businesses.

This means that, before making a claim, you need to check that receiving the full amount of EA for that year, when added to any other de minimis state aid (if any) already received or allocated in the claim year and previous two years, would not result in you exceeding the de minimis state aid threshold for your trade sector(s).  If the total would exceed the threshold(s), you’ll not be eligible to make a claim.

Sector (Economic undertaking)De minimis threshold/ceiling
Primary productions of argriculture products20,000 EUR
Fisheries and aquaculture sector30,000 EUR
Road Freight Transport sector100,000 EUR
Industrial / Other200,000 EUR

There are some employers, for instance, charities, community amateur sports clubs, employing someone to provide personal care, who may not be engaging in economic activity and will be outside de minimis state aid rules.  These employers will be eligible for the allowance, but it will not be classed as a de minimis state aid in these circumstances.

It is the employer’s responsibility to check whether they can claim the EA and confirm the eligibility with payroll.

After confirming your eligibility to claim with us: –

Once we make the claim for the EA on your behalf and de minimis state aid rules apply to your business, you will receive a letter to advise EA has be given under the de minimis state aid scheme, YOU WILL NEED TO KEEP THIS LETTER, you may need it if applying for any other de minimis state aid.

If your claim is rejected a Generic Notification Service (GNS) message will give the reason, these should be received within 5 days of the RTI Employer Payment Submission made with your EA claim.   Upon receipt, you will need to advise your payroll manager to remove the EA.

Employment Allowance increase: –

Employment Allowance will increase to £4000 from April 2020.

Announced in the budget on the 11th March 2020 the Employment Allowance will increase to £4000 from 6th April 2020.

This measure supports businesses by providing relief on their employer secondary Class 1 National Insurance Contributions liabilities. It is expected to reduce around a further 65,000 businesses’ National Insurance Contributions bill to £0, this is in addition to the current 590,000 that already have reduced their National Insurance contributions to nil.  The government feel this will allow small, growing enterprises to take on staff without incurring additional National Insurance Contributions liabilities.

Further guidance: https://www.gov.uk/guidance/changes-to-employment-allowance