Changes to the Employment Allowance

The Employment Allowance (EA) came into effect from 6 April 2014. There have been a number of changes to the EA over the years including that, from 6 April 2016, a company cannot qualify for the EA for a tax year if all the payments of earnings in relation to which the company is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and when each of those payments is made, that employed earner is a director of the company.

Further changes from 6 April 2020

The NICA 2014 is amended from 6 April 2020 so that a person cannot qualify for an EA for a tax year if the total of the following items is £100,000 or more:

• the person’s qualifying liabilities for the previous tax year; and
• where the person is a company, the qualifying liabilities for that previous tax year of each company (if any) to which the person is connected at any time in that previous tax year; and
• where the person is a charity, the qualifying liabilities for that previous tax year of each charity (if any) to which the person is connected at any time in that previous tax year.

‘Qualifying liabilities’ means any liabilities to pay secondary Class 1 contributions under SSCBA 1992 or SSCB(NI)A 1992 excluding any liabilities which are excluded liabilities as above.

Excluded persons: receipt of de minimis state aid

From April 2020 the EA will be administered as de minimis State aid in order to ensure compliance with European Union State aid rules and so a person cannot qualify for an EA for a tax year if, were the person to receive the maximum EA available for that tax year, it would in the person’s case be State aid that is not de minimis State aid.

Changes to the administration of EA

Employers will have to claim the EA every year in order receive the relief as it will no longer be carried forward from one tax year to the next tax year. Those engaging in economic activity will also have to notify HMRC every year to confirm that their previous year’s employer secondary Class 1 NIC liabilities were under £100,000 and to inform HMRC which State aid sector(s) they operate in and of any other State aid received or allocated for the tax year and the two previous years. These amounts must be converted from pounds sterling to euros.

The employer must also make a declaration to HMRC confirming that:

• they have checked that their secondary Class 1 NIC liability for the previous year is less than £100,000; and
• they have undertaken relevant checks with any connected companies in order to ascertain eligibility to claim; and
• that to best of their knowledge, they:
• will not exceed the relevant de minimis ceiling for State aid for the sector(s) in which they operate by claiming the full annual amount of an EA;
• are the only connected company making one claim for an EA across the whole connected group, as per the requirements at s3 and Sch 1 NICA 2014; and
• are not aware of any other reason why they would be excluded from claiming an EA for any other (eligibility) reason.

From April 2020 businesses will need to make extra checks to find out if they are eligible to claim the EA and although they will continue to claim EA through the Employer Payment Summary, claims will not renew and a new claim will be required for EA each year.