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Employment Allowance Eligibility Reforms

Originally introduced in 2014, the Employment Allowance (EA) offers most employers a reduction to their employer class 1 National Insurance (NIC) liability. The allowance has been set at £3,000 per employer since 2016 and any size of business or charity can claim, provided they have more than one employee.

The Government has now released draft legislation which will require employers to claim the allowance on an annual basis, and will restrict eligibility to employers whose Class 1 NIC liability was below £100,000 in the previous year. The new legislation is due to come into force from 6 April 2020. The proposed revisions will tighten the eligibility criteria to prevent larger businesses from claiming the allowance, which was originally intended as a support aid for smaller businesses in need of relief.

However, simply looking at last year’s NIC bill is not enough to determine eligibility. As the allowance will also be reclassified as an EU State Aid, eligibility becomes rather complicated as there is a de minimis limit on the total amount of State Aid an organisation can claim. If an EA claim results in these thresholds being breached, then they will not be eligible to claim any part of the allowance.

Many employers may be confused as to what should be counted as State Aid. HMRC have advised that notification letters are issued to businesses in receipt of State Aid, however in practice these letters are often not received. HMRC have also admitted that they do not maintain a record of who has received State Aid, so in practice it may be difficult to determine with certainty whether an organisation qualifies for the allowance.

These are only some of the complications which may arise if the draft legislation comes into force. Businesses and charities in receipt of State Aid will have an additional administrative burden to ensure they are not caught by the de minimis threshold, which could mean the associated costs outweigh the £3,000 benefit.

There is clearly some work to be done before the draft legislation can be enacted and HMRC are currently analysing feedback from the relevant professional bodies. Our Employer Solutions Taxperts will be monitoring the situation and will provide an update in due course. However, in the meantime you can read about the draft regulations here.

For more information or advice on the Employment Allowance, please contact our Employer Solutions Taxperts.

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