Employment allowance NIC break targets small business

From April, changes to the employment allowance will become de minimis state aid and HMRC has made the reporting rquirements less painful to encourage smaller businesses to use the tax break to reduce their NICs' bill

The government has revised the rules on the £3,000 employment allowance, with effect 6 April 2020, removing the requirement for employers to provide information about other de minimis state aid they have received or been allocated.

HMRC told Accountancy Daily: 'Employers have never had to provide this information: when we held the technical consultation on the regulations last year we received feedback that the requirment was too onerous, so we have removed it.'

In future, employers will have to claim the employment allowance every year in order receive the relief as it will no longer be carried forward from one tax year to the next.  

This reform, first announced at Budget 2018, is designed to target the employment allowance at the original intended beneficiaries: smaller businesses, excluding single director companies, giving them a tax break on Class 1 (secondary) National Insurance contributions (NICs).

The tax break will save the Exchequer £225m in the first year of operation, rising to £320m a year by 2023-24, and is likely to affect around 1.2m businesses, who are entitled to claim the tax break.

The tax relief will no longer be available to larger employers who incur employer secondary Class 1 NICs’ liabilities of £100,000 or more in the tax year immediately before the year of claim, as well as employers who are connected to other employers where their cumulative secondary Class 1 NICs liability is £100,000 or more.

To claim the employment allowance, employers must have space for the full employment allowance (currently £3,000) within their relevant de minimis state aid threshold.

When determining eligibility to receive employment allowance, for tax years starting on or after 6 April 2020, employers who are connected to other employers (such as companies within a group) will need to add together all of their collective secondary Class 1 NICs’ liabilities incurred in the tax year prior to the year of claim to assess eligibility.

If that amount is £100,000 or more, none of those employers will be eligible to claim the employment allowance for the current tax year.

As a result of this restriction, from 6 April 2020 employment allowance will be operated as de minimis state aid. It will be available to all employers who meet the secondary Class 1 NICs’ eligibility criteria, provided they have space in their relevant de minimis state aid limit(s) to accommodate the annual amount of the employment allowance, regardless of whether they would have that level of secondary Class 1 NIC liability).

The government has addressed the comments in the responses by amending the statutory notice to reflect a change to the data being requested.

The statutory instrument enacting the rules, Employment Allowance (Excluded Persons) Regulations 2020, was laid before parliament on 16 January 2020, amending the National Insurance Contributions Act 2014.


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