Employment Allowance changes come into effect from April
For more than half a decade the Employment Allowance (EA) has entitled employers to a maximum of £3,000 off their annual secondary Class 1 NIC bill.
However, a new restriction on the EA will come into force from April, which means that employers will only be eligible for the EA if their total secondary Class 1 liability in the previous tax year was under £100,000.
The change in rules is because EA will fall under the de minimis state aid rules, which exempt the Government from the approval process if a scheme only gives small amounts of aid.
This introduces a ceiling on how much state aid any business or organisation can receive under the de minimis rules, which for most businesses amounts to €200,000 over a three-year rolling period.
To counterbalance this the Chancellor announced an extension to EA in the Budget, increasing the NICs Employment Allowance from £3,000 to £4,000 in April.
The Government said that this will benefit around 510,000 businesses by reducing their costs of employment, with an average gain of £850 per year, while around 65,000 businesses will not have to pay NICs at all.
However, as a result of the earlier announced change to EA’s classification, employers will have to make sure they have space to accommodate the full £4,000 within their relevant three-year ceiling.
Due to this change, HM Revenue & Customs (HMRC) has introduced new compliance obligations for those who claim EA.
Employers will be required to supply the following information each year when they claim EA:
Employers will also have to make a declaration that:
Employers will not need to include deemed payments in their calculation as they do not count towards the £100,000 employers (secondary) Class 1 NICs total.
Where a company operates more than one payroll then the employer needs to Add together the employers (secondary) Class 1 NICs liabilities for each payroll.
If the total amount is:
Similar rules apply for connected companies and so you should check with your adviser if you are unsure.