HMRC are introducing new rules and processes for claiming the Employment Allowance (EA). Employers will need to make extra checks from 6th April 2020 to establish whether or not they are eligible to claim the allowance.
What is the Employment Allowance?
Subject to qualifying criteria, the Employment Allowance allows businesses who employ staff to reduce their Employers’ National Insurance bill. The relief was up to £3,000 per annum in 2019/20 but the latest Budget announced that this would increase to £4,000 per annum from 6th April 2020.
What is changing?
From 6th April 2020 you will only be able to claim the EA if your total secondary (employer) Class 1 National Insurance contribution liability is below £100,000 in the tax year before the year of claim.
In addition, from April 2020, the EA will be considered as a type of State Aid. This means it will contribute to the total aid you are allowed to get under the relevant de minimis state aid cap in the relevant 3-year period.
De minimis state aid
De minimis state aid rules apply if your business engages in economic activity, providing goods or services to the market. If your business falls into de minimis state aid rules, you’ll need to make sure that you have space under your business sector ceiling to get the full amount of EA available.
You do not need to include NIC liabilities arising on deemed payments in your calculations (for example, relating to off-payroll workers). These do not count towards the £100,000 threshold.
More than one payroll
If you run multiple payrolls, you will need to add together the total employer (secondary) contributions incurred by each payroll. If this total is above £100,000 you will not be able to claim the EA.
Where companies are connected, you should add together the total employers secondary Class 1 NICs liabilities for all companies in the group. If this total is:
- £100,000 or more – none of the connected companies will be eligible to claim EA
- below £100,000 – the group must decide which one company will claim
Regardless of the size of your company, you can’t claim the Employment Allowance if:
- You’re the director and the only employee that’s paid above the secondary threshold.
- You employ someone for personal, household or domestic work, unless they’re a care or support worker.
- You’re a public body or business doing more than half of your work in the public sector, unless you’re a charity.
- You’re a service company working under IR35 rules and your only income is the earnings of the intermediary.
‘You should let your payroll administrator know whether you’re eligible or not as claims need to be made via your payroll software. Claims will no longer automatically renew from year to year and therefore annual checks will need to be in place to ensure your claim is effective. Our qualified local accountants work with a range of small and medium businesses in Welwyn Garden City, Hemel Hempstead, Watford and St Albans to manage their company payroll systems. We will make employment allowance claims for them and discuss annual checks, so they don’t have to worry about doing anything.’
Why should local St Albans, Welwyn Garden City, Watford and Hemel Hempstead companies outsource their payroll?
Tena Wallace, HR & Payroll Director, Visionary Accountants, St Albans continued:
‘Many of our Hertfordshire and Bedfordshire payroll clients find that outsourcing their payroll is cost effective and allows their HR team to focus on other company issues. Managing payroll effectively is complicated and time consuming but it is essential that your business gets it right. At Visionary Accountants we use the most up to date and appropriate payroll software to manage your payroll effectively and correctly. If your business would like a free initial consultation to discuss how our accountants can support your company with payroll management, please call our Visionary payroll team on 01727 730550. Alternatively review how our payroll services can support your business.’