The employment allowance was first introduced in April 2014 and entitles eligible employers to a reduction of up to £3,000 from their annual secondary Class 1 National Insurance contributions (NIC) liability each year.
What is changing in April 2020?
A new restriction on the employment allowance will be introduced from 6 April 2020. Going forwards, employers will only be eligible for the employment allowance if their total secondary Class 1 NIC liability in the previous tax year was lower than £100,000.
A result of further restricting the employment allowance is that, from April 2020, the employment allowance will be classed as ‘state aid’ under EU rules. The EU state aid rules are designed to prevent member states from applying measures which may otherwise distort competition within the single market but recognise that small amounts of aid are unlikely to distort competition.
There is therefore a de minimis ceiling amount of state aid that any organisation can receive under the rules. For most businesses this ceiling is €200,000 over a rolling three-year period; however reduced amounts apply for the agriculture, fisheries and road freight transport sectors.
Employers must have a sufficient balance remaining within their relevant de minimis state aid ceiling for the full amount of the £3,000 allowance in order to make a claim. The impact of this is that if an employer is already in receipt of other state aid payments, they may lose their entitlement to the allowance.
Other administrative changes
A number of administrative changes are being introduced at the same time as the restriction, which employers will need to consider. From April 2020 the allowance must be claimed every year and will no longer be automatically rolled forward from one year to the next as it has been to date. Employers will be required to supply detailed information each year to support their claim and to make a formal declaration to confirm their entitlement to the allowance. This could make the process significantly more onerous and even though the state aid requirements are EU legislation, the Government’s previous statements that UK competition law will mirror EU state aid rules when the UK leaves the EU mean that some form of increased compliance burden is likely from April 2020.