Employment Allowance changes from April 2020

Employment Allowance (EA) was introduced in April 2014 and entitles most employers to a maximum of £3,000 (£2,000 before April 2016), reducing their annual National Insurance contribution (NIC) liability.

HMRC have announced a change in the compliance rules from 6 April 2020, EA will be restricted to employers with NIC liabilities of under £100,000 in the previous tax year from 6 April 2020.

Employment Allowance Compliance rules from 6 April 2020:

You can claim the Employment Allowance if:

• You are a business or charity (including community amateur sports clubs), or you employ a care or support worker, paying employers’ Class 1 National Insurance.
• Your total qualifying employers’ (secondary) Class 1 NICs liability in the previous tax year was less than £100,000. If you have multiple PAYE schemes or are part of a connected group of companies, the employers’ (secondary) Class 1 NICs liabilities of all companies, and/or PAYE schemes need to be added together to assess eligibility for Employment Allowance.
• The allowance can only be claimed once across all your PAYE schemes and connected companies. (Employers will need to decide which PAYE scheme to set the claim against).
• Employment Allowance claims need to be submitted each tax year. Claims will not automatically roll over from the previous tax year.

You cannot claim Employment Allowance if:

• You are a public body or business doing more than half their work in the public sector (such as local councils and NHS services) – unless you are a charity.
• You are 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).
• You employ someone for personal, household or domestic work (e.g. a gardener or nanny) – unless they are a care or support worker.
• You operate a Limited company where the director is the only employee with paid earnings above the Secondary Threshold for Class 1 National Insurance contributions, (introduced from 6 April 2016).

Change in circumstances during the tax year

It is worth noting that if your company has several employees paid above the Secondary Threshold, but your circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the EA for the tax year. You should stop it for the following tax year, unless there are further changes to your circumstances and a further employee is taken on and paid above the Secondary Threshold.

At Johnston Smillie we have a dedicated payroll team, each time we process your payroll, we assess your Employment Allowance status routinely.  If you would like to find out more about our payroll services, please contact us.

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