NIC Employment Allowance changes from April 2020

24 January 2020

During the General Election campaign the Prime Minister pledged to increase the Employment Allowance (EA) from £3,000 to £4,000 from April 2020. What he forgot to mention was the complexities of new rules around claiming the allowance that are already scheduled to take effect from April.

The key change is that the allowance will be restricted to employers who paid less than £100,000 in NIC in the previous tax year. Therefore, your total Class 1 secondary NIC payments (employers’ NIC), including those of any connected companies/businesses must be less than £100,000 for 2019/20 to claim the allowance for 2020/21.

Another important point is that the EA will have to be claimed each year, existing claims will not roll forward automatically as they have previously. And because the allowance is now restricted to smaller employers, it falls within the EU rules for ‘de minimis’ state aid (still in place until at least 1 January 2021) so employers will have to add EA to the total of all de minimis state aid the business receives to ensure the three year limit for their trade sector is not exceeded. The limit is set at €200,000 for most businesses but different limits apply for both the agriculture and fisheries sectors, and undertakings which provide a service of general economic interest.

Claim and declaration for 2020/21

The changes mean that employers will need to make a formal claim for EA for 2020/21 which will involve certifying to HMRC that:

  • The total of NIC paid (by them and any connected businesses) in 2019/20 was less than £100,000
  • The total EU state aid received in 2020/21 and the two prior tax years (including EA claimed in 2020/21) by them (and any connected businesses) will not exceed the limit for their trade sector
  • They are the only connected company claiming the EA.

When it comes to totalling the other EU de minimis state aid received, employers will need to include the value of de-minimis grants and tax reliefs received by them (or their group), eg R&D tax relief under the SME scheme, and convert those values in to Euros at the date of receipt.

Employers should be notified in writing of all de minimis aid they have received but should still take care to identify the correct data to ensure that a correct claim is made: as always there are expected to be penalties for making an incorrect claim.

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