Employment Allowance April 2020

By February 21, 2020Budget, Payroll Outsourcing

Employment Allowance April 2020

The Employment Allowance is £3000 that can be offset against an employer’s NICs (National Insurance Contributions).  There are changes arriving this April and there are a few more details now available.

Eligibility for Employment Allowance

Eligibility is now a little more involved to determine; there is a company size threshold then other questions that need to be answered each tax year.

  1. Some exclusions remain the same, such as single director companies and public bodies.
  2. The employer’s (secondary) Class 1 NICS liability in the previous tax year must be less than £100 000. If greater the employment allowance cannot be claimed.  This £100 000 threshold is also applied to groups and connected PAYE schemes, so the combined total needs to be measured.
  3. If you have workers within IR35 you cannot offset their NI liability against Employment Allowance, but equally you do not need to count their NI towards the £100 000 threshold.
  4. If there are connected PAYE schemes, but the combined total is less than £100 000, then the Employment Allowance can still only be used against a single PAYE reference. It is up to the connected PAYEs to nominate the particular scheme.
  5. De minimis State aid rules: these rules will apply if the organisation is engaged in economic activity, so providing goods or services to the market, and most companies will fall into this bracket. You cannot claim Employment Allowance if this would mean exceeding the De minimis State aid thresholds for a particular business sector.

Claim the Employment Allowance each Tax Year

The majority of small business should be able to continue to claim the allowance, but there is now more work to do at the beginning of the new tax year.

At the start of the tax year, as well as determining eligibility, if the business is claiming the employment allowance you will need to declare the business sector, choosing from one of the following options

  1. State Aid Rules do not apply
  2. Primary Production of Agriculture Products
  3. Fisheries and Aquaculture Sector
  4. Road Freight Transport Sector
  5. Other, Industrial

For further guidance see here

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