From April 2020, HM Revenue & Customs (HMRC) are introducing new rules and processes for claiming the employment allowance.
Employers who’s secondary (Employer contributions only) National Insurance bill was £100,000 or more in the previous tax year are no longer eligible to claim the employment allowance.
Employment allowance is now considered a type of State Aid . This is because it’s essentially placing some businesses in an advantageous position over others which could potentially distort competition and trade within the European Union (EU).
What does this mean?
The change effectively withdraws the employment allowance for medium to large sized companies, with approximately 100,000 employers affected from the change. However, over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.
Regardless of the size of your company, you can’t claim the Employment Allowance if:
- You’re the sole director 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.
In addition to this:
- Currently, the allowance can only be claimed against one company if you have multiple PAYE schemes or, are part of a connect group of companies. Going forward,
the secondary liabilities for all companies, and/or PAYE schemes needs to be added together to assess eligibility; if this figure exceeds the £100,000 threshold, you cannot continue to claim the Employment Allowance.
What do I need to do?
A new claim for Employment Allowance needs to be submitted once at the start of each tax year. Unlike before, claims will not automatically renew each tax year.
Employment Allowance will continue to be claimed by submitting an Employer Payment Summary (EPS)
However, going forward, you will also need to indicate the trade sector in which your business operates – Agriculture, Fisheries & Aquaculture, Road Freight Transport or Industrial for everyone else.
If your business is not undertaking economic activity; e.g. charities, community amateur sports clubs, employing someone to provide personal care; you’ll need to advise that State Aid rules do not apply.
Payroll software for the new tax year will be updated to include this new legislation. If you have any queries on how to submit your EPS for 2020/21, please contact your provider for further assistance.
We will be checking eligibility for our payroll clients and making contact via our year end administration. You will need to advise us in writing of your eligibility and trade sector prior to us processing the first payroll for the new tax year.