07 Oct 2019 9:46 AM

The Employment Allowance was introduced in April 2014, to support businesses and charities to grow by cutting the cost of employment. Eligible employers could claim the allowance, which reduced their Employer NICs bill by up to £2,000 per year. From April 2016 the allowance increased to £3,000 per year.

From April 2020 employers will only be entitled to claim the Employment Allowance if their Employer NIC bill was less than £100,000 in the previous tax year.

Over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.

However, regardless of the size of the business, you will not be able to claim the employment allowance if any of the following apply:

  • You are the director and the only employee paid above the Secondary Threshold
  • You employ someone for personal, household or domestic work (like a nanny or gardener) – unless they are a care or support worker
  • You are a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity
  • You are a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)

As a result of these changes it will be necessary for employers to supply information to HMRC to ensure they are compliant with the new regulations.

They will need to declare which sector they operate in and, of course, the amount of de minims state aid they have received and when. Employment allowance is now considered a type of state aid, essentially placing some businesses in a better position than others.

HMRC also propose that employers will need to declare through the Employment Payment Summary (EPS):

  • That they have checked their national insurance secondary Class 1 liability for the previous year.
  • That they have checked with connected companies to ensure they are eligible to claim the Employment Allowance
  • That to their knowledge they will not exceed the relevant de minimis amount for state aid by claiming the full amount of Employment Allowance, that they are the only connected company to claim the allowance and that they are not aware of any reason why they may be excluded from claiming.

If you would like advice on this or any payroll related matter please contact us.