Employment allowance NICs 2 threshold reduced

The government is cutting the threshold for eligibility for claims for the employment allowance from April 2020 due to state aid de minimis rules and to remove larger business claimants from the scheme

HMRC is now consulting on draft legislation to restrict access to the employment allowance for a tax year to employers with secondary Class 1 National Insurance contributions (NICs) liabilities below £100,000 in the previous tax year.

Employment allowance is a relief which entitles most businesses and charities to a reduction in their secondary Class 1 NICs liabilities of up to £3,000 per year.

From April 2020, it will be administered as de minimis state aid in order to ensure compliance with EU state aid rules.

The draft legislation will provide that employers with a Class 1 secondary National Insurance liability of £100,000 or more in the preceding tax year will no longer be eligible to claim employment allowance.

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.

Employment Allowance was first announced in Budget 2013 by then Chancellor George Osborne, as an entitlement of £2,000 a year for businesses, charities, and amateur sports clubs towards their secondary Class 1 NICs liability. This was done with the intention to support businesses, particularly small businesses wanting to hire their first employee or expand their workforce. The annual entitlement was increased to £3,000 in Budget 2015.

‘This reform is designed to focus the Employment Allowance at the original intended beneficiaries: smaller businesses. That is why the relief is being removed from 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,’ HMRC said.

HMRC is seeking comment from employers and businesses, particularly those which are larger or are in receipt of state aid, and especially if it is state aid provided under the de minimis rules. The consultation closes for comment on 20 August 2019.

The Employment Allowance (Excluded Persons) Regulations 2019 will be made under powers in section 5 of National Insurance Contributions Act 2014 and, as has been previously announced, a final version of the regulations and guidance will be published in October 2019.

The legislation is set to take effect from 6 April 2020.

Draft legislation: Employment Allowance eligibility reforms

Sara White

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