HMRC CHANGES TO EMPLOYMENT ALLOWANCE
Updated guidance on the Employment Allowance published for employers able to claim from 6 April 2020 - restricted to those with a total annual employer's NIC cost of under £100k.
Changes to Employment Allowance
Find out about changes to the rules and extra checks you’ll need to make to see if you can still claim.
Published 10 February 2020
From 6 April 2020 eligibility rules for claiming the Employment Allowance (EA) will change. This guidance will help:
- professional bodies provide updates to their members
- tax agents and advisers make sure their clients are ready for the changes
Current guidance on how EA works will be updated in April 2020.
Before you make a new claim
You’ll continue to claim EA through your Employer Payment Summary (EPS), but claims will not renew and you’ll need to make a new claim for EA each year.
You should let your payroll administrator know whether you’re eligible or not.
Check your eligibility
Eligibility after 6 April 2020
From 6 April 2020 you can only claim EA if your total (secondary) Class 1 National Insurance contributions (NICs) liability is below £100,000 in the tax year before the year of claim.
You do not need to include deemed payments in your calculations. Any deemed payments you make, such as to off-payroll workers, do not count towards the £100,000 employers (secondary) Class 1 NICs total. You cannot claim EA for these workers.
More than one payroll
Add together the employers (secondary) Class 1 NICs liabilities for each payroll, if you have more than one payroll (in the tax year before your claim).
If the total amount is:
- £100,000 or more you will not be eligible to claim EA
- under £100,000 you should decide which one makes the claim
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
You can read more about connected companies.
De minimis state aid
Check you will not exceed the de minimis state aid threshold
From 6 April 2020 EA will operate as de minimis 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.
If you engage in economic activity
De minimis state aid rules apply if your business engages in economic activity, providing goods or services to the market.
You do not have to make a profit. If others in the market offer the same goods or services, it is still an economic activity and de minimis state aid rules will apply. So de minimis state aid will apply to most businesses claiming the EA.
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.
When you may not fall into de minimis state rules
You’ll not fall under the de minimis state aid rules if you do not engage in economic activity, for example, if you:
But you may still be eligible to claim EA.
Check other de minimis state aid you get
You’ll need to look at other de minimis state aid you got in the claim year and the previous 2 tax years. This is the relevant 3-year period.
Most businesses will not have received de minimis state aid before so will not need to do further checks to check if they are eligible for the EA.
How de minimis state aid and the relevant threshold are worked out
De minimis state aid and the relevant thresholds are worked out in euros. You should have been told in writing if other aid you have received was de minimis state aid. The letter should also tell you how much you got.
If not you should convert other aid you have received, and the full amount of EA for the claim year into euros using the exchange rate for April of the relevant year. You can then be sure you do not exceed the relevant de minimis state aid ceiling.
Check the exchange rates you need. You need to make de minimis state aid calculations starting from tax years 2020 to 2021.
If companies are connected, you’ll need to:
- add the totals for each of the companies together
- make sure that, together, they are not more than the relevant sector threshold
State aid ceilings
The table shows the de minimis state aid ceilings for the relevant 3-year period.
Business sectorCeilingPrimary production of agriculture products€20,000Fisheries and aquaculture sector€30,000 Road freight transport sector€100,000 Other, industrial (everyone else) €200,000
Businesses that cover 2 or more sectors
For businesses that cover 2 or more sectors you need to have enough space under all your sector ceilings together to get the full amount of EA available.
You do not need to have enough space under each individual ceiling or a single ceiling to receive the full amount of EA.
- only claim EA against the liabilities of an employee working in a sector until that sector ceiling is met
- continue to claim the EA against the liabilities of an employee working in another sector, as long as there is still space under that business sectors ceiling
It may be that a business works between 2 or more sectors but only has space under the ceiling of 1 sector to receive de minimis state aid. But they do not have any employer (secondary) NICs liabilities in that sector.
In this case, although the business will be eligible for the EA, there are no liabilities to set the allowance against and a claim should not be made.
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