During the General Election campaign the Prime Minister pledged to increase the Employment Allowance (EA) from £3,000 to £4,000 from April 2020. Time will tell whether this campaign promise will materialise (politicians have been known on the odd occasion to be susceptible to hyperbole), but there are changes coming in April 2020 that are in fact certain.
The most significant change is that the allowance will only be claimable by employers who had less than £100,000 in National Insurance Contributions in the previous tax year. Therefore, your total Class 1 secondary NIC payments (employers’ NIC), including those of any connected companies/businesses must be less than £100,000 for 2019/20 to claim the allowance for 2020/21.
Whilst the changes relate to EU legislation, there could be an assumption that – since Brexit became official on January 31 – these changes may not take place. However, for the transition period at least, the UK will mirror the EU and these changes will be introduced – although perhaps subject to amendments at a later date.
Other restrictions that prevent you from claiming remain in place, Therefore if any of the following apply, you may not claim the Employer Allowance:
- You’re the director and the only employee paid above the Secondary Threshold
- You employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker
- You’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity
- You’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)
On this last point, note that the “New IR35” rules are coming into effect in April 2020 as well, which will have far reaching effects on the private temporary worker (contractor) sector. More on this in a future article.
While it seems that the change is made to ensure the smaller companies continue to benefit while larger companies no longer do, there are also – as per the usual government modus operandi – numerous administrative burdens and restrictions being imposed. On balance, many smaller companies may just feel there is more hassle than worth in trying to claim the Employer Allowance beyond April 2020. That would however be a mistake, especially given that a little outside help (such as from us) could go a long way.
One of the changes being introduced is that the claim will have to be submitted each tax year and will not automatically be carried forward from the previous tax year as it has been to date.
It also forms part of some of the EU allowances, though those are likely to fall away over the next several years as a result of Brexit. However, if your company currently benefits from EU State Aid, you will certainly want to get expert advice on this matter.
HMRC has advised that further guidance regarding the changes will be available in the coming months. It is hoped that this guidance will be clear and concise to help employers with the requirements that these changes will impose on them.
These changes have been expected for some time. It was initially announced by the Chancellor at Budget 2018. Given that the Octob 2019 budget has been delayed due to the General Election, it remains to be see how the new government plans on changing this, if at all.
The Employment Allowance was introduced in 2014 in the National Insurance Contributions Act 2014, and was originally a relief of up to £2,000 when it was first introduced. It was reformed from April 2016 to increase the value of the relief to £3,000 and to exclude single director companies.
As mentioned at the top of this article, the PM haspromised to increase it to £4,000 but this has not yet been confirmed as a reality.
If your company is affected by any of these changes, we would welcome a conversation to possibly provide clarity or assistance. We offer a complete accountancy service to UK trusts, companies and individuals, including:
- Year-end accounts and corporation tax returns
- VAT returns
- Management Accounts
- Company Secretarial Services
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- ISO Certified (ISO 27001:2013(ISMS))
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