The £2,000 employment allowance (EA) was the surprise Osborne announcement in the 2013 Budget and arrived in the National Insurance Contributions (NICs ) Act 2014, taking effect from April 2014 and giving all employers a £2,000 allowance to reduce or eliminate their annual employers' NICs bill.
It was introduced to help employers to grow and hire new staff. However, a review commissioned by HMRC in May 2015 was scathing about the impact of the initiative, suggesting that many of the new jobs since its introduction would have been created regardless of the allowance.
The EA was reformed from April 2016 to increase the value of relief to £3,000 and to exclude single director companies following some abusive practices. It remains at £3,000 for 2019/20.
When Chancellor of the Exchequer Philip Hammond was looking to scale back the scheme, which costs about £2bn a year, he announced further changes, which we have now seen in the recently issued draft legislation. From April 2020, only those organisations with an NICs bill below £100,000 in the previous tax year, providing they apply and meet certain eligibility criteria, will still qualify. The changes make it difficult for employers and those assisting with payroll to know if, in fact, they do qualify in many cases.
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 providing they can work out that they are still eligible to claim.
The complication is that employers may not receive the EA unless it qualifies as de minimis state aid under European Union (EU) rules. HMRC has admitted it doesn't keep a central register of which businesses have applied for state aid under what rules. 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 NICs 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 far too complicated to work out if they can claim the £3,000 each year. Of course, if the UK leaves the EU, as currently scheduled on 31 October 2019, those currently receiving state aid are unlikely to feel that it is sufficient compensation for them to be able to claim the EA.
It should be remembered that, regardless of size, an employer can’t claim the employment allowance if:
- its sole director is the only employee paid above the secondary earnings threshold;
- the employee is employed for personal, household or domestic work (such as a nanny or gardener) unless they are a care or support worker;
- it is a public body or business doing more than half its work in the public sector - unless it is a charity; and
- it only has deemed employment income under ‘IR35 rules’.
The consultation on the draft legislation closes on 20 August 2019.