How will the Employment Allowance reform coming into play from April 2020 affect my business?

What are the new changes coming into play?

With effect from 6 April 2020, employers with a National Insurance contributions (NICs) liability of £100,000 or more, or employers who are connected to other employers where their cumulative secondary Class 1 NICs liability is £100,000 or more, will no longer be able to claim the Employment Allowance.

The reform has been designed to revert the Employment Allowance to benefit smaller businesses, hence the limitation that companies will only be able to claim the Allowance moving forward if their NIC liability in the previous year was less than £100,000.

De minimis State Aid

The Employment Allowance moving forward will be operated as a de minimis State Aid, meaning businesses will need to be aware if they are already claiming any other de minimis State aid(s). There is a three year cap on the total de minimis State Aid a business can claim – this cap is €200,000 over a three year rolling period.

Employers will need to ensure they have room on their rolling €200,000 cap to accommodate the full £3,000 Employment Allowance, regardless of whether they would use the full £3,000 allowance. Employers who are connected must ensure that the cumulative value of all secondary Class 1 NICs or State aid across all connected companies does not exceed the relevant limits.

How can I claim if my company is eligible?

A company could get up to £3,000 a year off their National Insurance bill if they are an employer.

The allowance will reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has been reached or the tax year ends (whichever is sooner).

You can only claim against Class 1 National Insurance you’ve paid, up to a maximum of £3,000 each tax year. You can still claim the allowance if you pay less than £3,000 a year.

Employment Allowance claims will need to be submitted each tax year. Claims will not automatically roll over from the previous tax year. Look out for more information in the coming months.

Useful links

Please see the below link to the consultation documents from GOV.UK:

https://www.gov.uk/government/consultations/draft-legislation-employment-allowance-eligibility-reforms

In association with Croner Taxwise

Image designed by Freepik

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