As detailed in our tax voice article last year, the employment allowance (EA) currently provides businesses and charities with up to a £4,000 reduction in their employer national insurance contributions (NIC) bill. Since its inception in 2014/15 EA rules have remained largely unchanged however, drastic eligibility restrictions are to be implemented in the new tax year.
- from 6 April 2020, employers will only be entitled to claim the employment allowance if they had an employer NICs bill of less than £100,000 in the previous tax year;
- there will be no automatic qualification for EA based on previous year’s eligibility, you must claim it each tax year; and
- employers must be able accommodate the £4,000 EA within State Aid limits.
The new restrictions will effectively withdraw the employment allowance for larger businesses. The allowance was originally offered to support employers in staff acquisition, but for larger business the £4,000 flat rate does not offer a major incentive for growth. The changes are targeted at narrowing the benefit to employers that will consider the allowance enticing.
In addition, where HMRC have previously assumed eligibility based on previous years submissions from 2020/21 the allowance will need to be claimed each individual tax year by means of an employer payment summary (EPS).
These tightening reforms come as HMRC also limit employers’ ability to make EA claims for prior tax years. It has not been possible to successfully submit an EA claim for the 2014/15 tax year since April 2019 and with effect from April 2020, it will not be possible to submit a back-dated EA claim for either 2014/15 or 2015/16. Employers should promptly claim retrospective EA to avoid missing out.
Businesses participating in other State Aid allowances such as regional investment incentives, preferential loans and tax exemptions must ensure they have not reached the State Aid ceiling and still have room for the Employment Allowance within it. Companies will need to declare if any State Aid is received as part of the real time information submission claiming EA thereby confirming they have not exceeded limits.
As payroll administrators, we can action current and backdated claims even for periods where we did not manage a payroll, our payroll software InPay will automatically subtract the allowance from employer NIC liabilities for eligible businesses. If you have any questions regarding the above, or have any concerns about being compliant, please contact Simon Balaam or Steve Sweetlove.