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Employment allowance changes from April 2020

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Summary

From April 2020, HMRC are introducing new rules and processes for claiming the employment allowance.

Resolution

What's changing?

From the 2020/2021 tax year, HMRC will make the employment allowance available to businesses and charities whose employer national insurance contributions (NICs) bill was below £100,000 in the previous tax year. Any companies that exceed this are no longer eligible to claim the employment allowance. This means that from April 2020 larger employers need to ensure that the Eligible for Employment Allowance check box within the employer settings isn't selected.

Employment allowance is now considered a type of State Aid. This is because it's essentially placing some businesses in an advantageous position over others which could potentially distort competition and trade within the European Union (EU).

From 6 April the Employment allowance increases from £3000 to £4000.

What does this mean?

The change effectively withdraws the employment allowance for medium to large sized companies, with approximately 100,000 employers affected by the change. However over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.

Regardless of the size of your company, you can't claim the employment allowance if:

  • You're the director and the only employee that's paid above the secondary threshold.
  • You employ someone for personal, household or domestic work, unless they're a care or support worker.
  • You're a public body or business doing more than half of your work in the public sector, unless you're a charity.
  • If you're a service company and supply services where some of the income falls under the IR35 rules, whilst other income is outside the scope of these rules then you may be able to claim some employment allowance. Professional advice should be sought on your specific circumstances.


What do I need to do?

All of the changes to the employment allowance and all other legislation, as well as the option to check if you're eligible to claim the allowance.

After installing the update, you can apply for Employment Allowance.

  1. Click Employer, then click Maintain Employer Details.
  2. Click HMRC Details, then click Apply for EA.
  3. From the State Aid drop-down menu, select one of the following options:
    • Applicable
    • Not Applicable

    If State Aid is applicable, select the relevant State Aid Sector.

    For further advice on State Aid and if it's applicable to your company or not, contact HMRC.

  4. Click Submit then click Continue.
  5. Click Submit then click Submit.

An employer payment summary (EPS) is sent to HMRC with the employment allowance application. If your application is successful, HMRC will confirm this in writing. If your application is unsuccessful, you'll receive a notification within your HMRC Secure Mailbox within five working days. Once you've had confirmation from HMRC that your application has been approved, you can select the Eligible for Employment Allowance check box within HMRC Details.

NOTE: Due to the current COVID-19 pandemic, there are delays in sending the confirmation letters. When you receive your confirmation letter, you must keep it as you may need it if you apply for other de minimus state aid.


Where can I find help?

We'll be updating this article with more information when we have it, this will include what you need to do in your software and how to do it. We'll also keep you updated via the Sage Instant Payroll Help Centre and your monthly payroll newsletters.


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