Employment Allowance Changes for April 2020
The Employment Allowance is changing again. The allowance was introduced in 2014 and offers a reduction to employer’s class 1 secondary National Insurance contributions. The allowance was initially £2000, but was then increased to £3000 in 2016. The proposed Employment Allowance changes for April 2020 will potentially affect most business in the UK.
Employment Allowance Eligibility
Employment Allowance is generally not too complex and is fairly simple to administer, but there can be difficulty sometimes with determining eligibility.
At the moment there are guidelines in place to determine whether a company is eligible or not, and these include the following:
- A company which provides a function wholly or largely of a public nature will not be eligible. Examples include for the NHS such GP surgeries, or refuse collection for local government. A company could be eligible if they work partially in the public sector but this is less than 50% of their business.
- Public authorities such as parish councils are not eligible.
- Educational Institutions are only eligible if they are private companies or charities.
- Domestic staff payrolls will not be eligible for the employment allowance. Examples include employers of domestic gardeners, cleaners and nannies.
- A limited company where the only employee is a director will not be eligible.
- Connected businesses and Charities. Only one member within the group can claim the allowance, the rules that determine the connected status are complex and care is needed.
For further guidance on determining eligibility for employment allowance please see here.
Employment Allowance Changes from April 2020
There are two changes announced for April 2020:
- The employment allowance will need to be claimed each tax year, it will no longer automatically roll over if claimed the previous tax year
- Larger companies and groups will no longer be eligible.
The simplest change is that the allowance will need to be claimed each tax year. This is likely to be an additional Employer Payment Summary (EPS) for companies in the April of each tax year. This will be a declaration that the company is eligible, but the administration should be straightforward.
The more complex proposal is that companies with a secondary class I employer’s National Insurance liability of greater than £100 000 will no longer be eligible. This also includes connected businesses, so if the combined liability is greater than £100 000 the group will no longer be eligible, even for the single nominated group member.
The £100 000 employers National Insurance is taken from the preceding tax year, so for a company to claim employment allowance in April 2020, their liability will need to be below £100 000 for the 19/20 tax year.
What is required?
We suspect the most issues will be with groups, and especially where they are around the £100 000 employer’s National Insurance total liability. There is nothing new in this, but there will be the added complication of combining the employer’s National Insurance once the members of the group have been agreed upon.
Small companies that forget to claim annually could also face fines and interest payments if they reduce their payments to HMRC assuming they still qualify for the allowance. Book-keepers and small business owners responsible for their own payroll will need to be aware of the changes and make sure they know the steps required in April.
Some preparation is required, but hopefully this will be fairly straightforward for most businesses.