There are restrictions on claiming the employment allowance (EA) from April 2020. What are they, are you fully up to speed with the basic rules and what enforcement risks do you run?
The employment allowance (EA) was introduced in April 2014 to support businesses and charities by cutting the cost of employers’ NI, so encouraging firms to take on more employees. In 2016 it was increased to £3,000 p.a. allowing eligible organisations not to pay over the first £3,000 of NI in a tax year. This will rise to £4,000 from April 2020.
The EA is claimed by setting a marker to “yes” on the employer payment summary (EPS) in the relevant tax year.
Tip: The marker does not have to be set at the start of the year; it can be set at any point in the year, allowing you to recover any NI already paid up to a maximum of £3,000 (£4,000 from April 2020). Once eligibility is established for a tax year it remains for that year even if, e.g. you cease to employ anyone, so you don’t need to repay any reclaimed NI.
Single director companies cannot claim the EA on any salary they pay themselves, unless they take on another employee during the year who earns above the employers’ NI threshold for the rest of the year.
Tip: For any deemed employees added to the payroll under the IR35 /off-payroll rules, NI paid on their fees cannot be claimed back under the EA.
Connected businesses and charities
Where there are connected businesses or charities, only one business or charity will be entitled to claim the EA against one PAYE scheme only. This is regardless of how many PAYE schemes the connected businesses/charities operate. It is up to the businesses/charities to nominate which PAYE scheme can claim the EA. This election can change each tax year, but not during the tax year.
New from April 2020
From the start of the new tax year, you will no longer be able to claim the EA if your employers’ NI liability is £100,000 or more for the 2019/20 tax year.
Tip 1: You do not need to set the marker to “no” on the EPS in April, as all claims will fall away at the end of March. Employers who do wish to continue to claim must now submit a claim every year and also indicate that they have headroom to do so in their sectoral de minimis state aid threshold. This is because restricting the EA by a financial measure has turned it into de minimis state aid.
Tip 2: No central list exists as to what grants or funding are classed as de minimis state aid, so you may need to take advice to check whether your business is affected.
What to do next.
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