When the Employment Allowance (EA) was first announced in the 2013 Budget and came into effect from April 2014, it was a widely welcomed provision.
It was effectively giving all employers £2,000 off their annual PAYE bill by reducing the National Insurance Contributions (NIC) due.
The original intention behind the introduction of EA was to help employers to grow their business and be able to hire new staff to do so, without being hindered by an increased NIC bill. This was met with a scathing review by HM Revenue & Customs (HMRC) in May 2015 as to the impact of the initiative, suggesting that many of the jobs would have been created regardless of the new allowance.
A subsequent review and reform of the allowance in April 2016 excluded single director companies and increased the value of the relief to £3,000, the level at which it remains for the current tax year. Are further changes now in the pipeline?
The current scheme costs the treasury around £2bn, so the Government is looking to scale back the scheme. A review of the scheme by the current Chancellor of the Exchequer has resulted in the announcement of further changes, which we have now seen in the recently issued draft legislation. From April next year 2020, only those organisations with an NIC bill below £100,000 in the previous tax year will still qualify, providing they apply and meet certain eligibility criteria. However, the eligibility criteria can, in many cases, make it difficult for employers and those assisting with payroll to determine if in fact they do now qualify.
The change could mean more than a million firms will be paying more towards their employer’s NICs from April 2020. The Government estimates that over 99 per cent of micro-businesses and 93 per cent of small businesses will still be eligible for the allowance – but this is providing they can work out whether or not they are still eligible to claim.
The complication is that employers may not receive the EA unless it qualifies as de minimis State Aid. HMRC has admitted it doesn’t keep a central register of who has applied for State Aid for what item. It will therefore require any employers wishing to claim the EA for a tax year to complete a declaration (Employer Payment Submission) and supply certain information before they use the relief to reduce their NIC liability.
For those employers, or agents acting on their behalf, likely to be in receipt of State Aid (transport, agriculture, fishing or landed estates), it may just be too complicated and take too much time to work out if they can claim the £3,000 each year. Of course, if the UK has left the EU by 31 October 2019 those currently receiving State Aid are unlikely to feel that it is sufficient compensation to be able to claim EA.
It should be remembered that, regardless of the size of the company, you can’t claim EA in the following circumstances:
-You are the director and the only employee paid above the Secondary Threshold;
-When employing someone for personal, household or domestic work (such as a nanny or gardener) unless they are a care or support worker;
-A public body or business doing more than half your work in the public sector – unless a charity; and
-When working under IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership).
The consultation on the draft legislation remains open until 20 August 2019 so there may be further changes when the legislation is finalised. Whether the final legislation makes an employer’s position easier to determine, however, remains to be seen.
If you would like more information on the Employment Allowance or would like advice on other taxation issues, please contact Richard Urron, corporate tax partner, on 0191 255 7091 or richard.urron@rsmuk.com or your usual RSM contact
