Hello,
With the threshold for a business to claim Employment Allowance being that its employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, does this mean that any business can claim EA in the first year of trading? Even if in that first year the business would breach the £100k threshold?
Assuming that no other eligibility criteria are relevant (not a public body, more than one employee who is not a Director etc).
Thank you.
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Replies (10)
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It's impressive if you are certain, in advance, that a brand new business will exceed £100k in employers’ Class 1 National Insurance liabilities in its first tax year (note: that's PAYE tax year, not accounting year of the business).
And, unprofessional though it may be of me to say it, such an operation hardly needs the £5k (which would not be meeting the objectives for which it was invented).
However ... since, by definition, the business cannot breach that threshold for the previous year (when it didn't exist) - then, Yes, it can claim the EA for the (part of) its first PAYE year.
Of course if in that first year the business breaches the threshold, then it will cease to be eligible the next year (and had better remember to 'switch-off' the claim in its first RTI submission that year - else it will be deemed to be making a fraudulent claim!)
As Hugo says, this would be impressive if it were a brand new business. I assume that by saying “brand new” Hugo is alluding to s 2(5) to (9) NICA 2014 which deals with cases where there is a transfer of business by excluding the employer Class I liabilities relating to those employees employed in connection with the transferred in business from the calculation of the amount of the allowance, which would therefore be nil if all the business was as a result of a transfer.
But if that’s what the law says … Does it mean what the OP thinks it means?
The black letter law is, to conflate (or comminute) subsections (4B) and (4E) (part),
“A person cannot qualify for an employment allowance for a tax year if the person’s liabilities to pay secondary Class 1 contributions under SSCBA 1992 for the previous tax year is £100,000 or more.”
A. A purely literal and non-contextual interpretation would say that if the employer did not make any payments of employed earner’s earnings above whatever threshold there might be in the previous tax year then they are entitled to the EA.
B. A purposive interpretation would say that the purpose of the EA is to incentivise small companies to employ more people, and this purpose is breached if a large employer (applying the £100,000 threshold in the first year) can claim it.
The interpretation required by B. is that there must have been a liability to pay Employers NICs in the previous tax year which was less in total than £100,000. You cannot have a liability to pay something if you do not exist, and even if you exist you do not have a liability to pay those NICs if you don’t employ anyone.
For what it’s worth this is the interpretation put on the regulations by the TIIN for the amending regulations (SI 2020/218) and the Explanatory Note for them. Oddly the Explanatory Note to the regulations is different and supports the literal view.
All but the EN refer to employers incurring or with liabilities under £100k. The EN says
“The new subsection (4B) prevents a person from qualifying for the employment allowance if they incur qualifying liabilities of £100,000 or more in the tax year prior to claiming the employment allowance.”
which can, with a certain amount of stretching plausibly be read as suggesting that a non-existent employer is OK as they will not have incurred amounts over £100k.
By the way the NI Manual does not mention the £100k rule at all.
My strong inclination is to adopt the purposive interpretation and say that a new company which goes over £100k in CY cannot make a valid claim.
I am fortified by a decision which might be thought to support the literal interpretation. In Cape Brandy Syndicate v CIR, Rowlatt J sitting in the High Court said these much quoted words.
“in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax: there is no presumption as to a tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax.”
But that’s not really what he did in the case. One issue was whether the Syndicate was liable to Excess Profits Duty, a tax imposed in World War 1 to tax the profiteers, the “hard faced men” who were minting it from manufacturing munitions and watering the workers’ beer.
The tax was imposed by FA 1915 on the amount
"by which the profits arising from any trade or business to which this Part of this Act applies, in any accounting period which ended after the 4th August, 1914, and before 1st July, 1915, exceeded by more than £200, the pre-war standard of profits".
Rowlatt J went on:
What is the pre-war standard of profits? … Paragraph 4 deals with the, case where there have not been three pre-war trade years. … And now comes the sentence upon which everything turns. "And where there has not been one pre-war trade year, the pre-war standard of profits shall be taken to be the statutory percentage on the average amount of capital employed in the trade or business during the accounting period."
Despite the urgings of the Inland Revenue that this last wording literally covered the case where there was no trade at all before WW1, Rowlatt would not have it. The words were intended to cover the case where there was trade but there was not a full year’s trade. The Revenue did succeed though because Rowlatt J construed amendments made in FA 1916 (which had to be read in conjunction with FA 1915 to give the full context) as impliedly showing that the tax was imposed on persons who had not set up their trade or business before the start of the war.
Interesting ... twice over:
“A person cannot qualify for an employment allowance for a tax year if the person’s liabilities to pay secondary Class 1 contributions under SSCBA 1992 for the previous tax year is £100,000 or more.”
A good example of drafters not being versed in the difference between zero and null (in Computing or general mathematics) - the former being a numerical value of a data item, whereas the latter is the absence of any data (numerical or otherwise) for that data item.
[The distinction is perhaps better known to readers here in the field of VAT.]
Now, if the wording had been:
“A person cannot qualify for an employment allowance for a tax year unless the person’s liabilities to pay secondary Class 1 contributions under SSCBA 1992 for the previous tax year is under £100,000”
... then there'd be no need for this (particular) discussion.
BTW I mentioned "twice over" at the start here ... because I enjoyed the historical tour of precedents, also.
Hmmmmmmmm fascinating thread
ok ref the text
"A person cannot qualify for an employment allowance for a tax year if the person’s liabilities to pay secondary Class 1 contributions under SSCBA 1992 for the previous tax year is £100,000 or more.”
Putting my logical thinking cap on - my opinion is that i disagree with the thoughts of richard thomas that EA claim could perhaps be blocked.
this is the bit where richard has lost me.
"The interpretation required by B. is that there must have been a liability to pay Employers NICs in the previous tax year which was less in total than £100,000"
The first quote above simply doesnt say that whatsoever it cleary says the block is only in place if the previous year "was 100k or more". To me a null/void/na answer is not obviously below 100k but it deffo isnt 100k or more so my logical thinking is that clearly there is no block here on the basis that null/void/na is not 10k or more end of
These are my thoughts and could be easily missing something - i would normally always bow to the comments of richard thomas - so i am wandering if i am missing something.
Note it would have been easy to add in line ref first year blocking claims if first year income exceeded 100k. If there is no such line that suggests they werent worried enough to want to specifically worry about that. Note from memoy i think there is a specific similar line for related parties that references whether its first year scheme or not so its clear that they were aware of the fisrt year isues when drafting the legislation.
Whilst I agree with your view, may I suggest you never do this when it comes to tax?
Putting my logical thinking cap on
I did this a few days ago on this forum, having known very well all these years what s.17(1) TCGA was about, had a brain freeze moment, applied logic and ended up posting something incorrect.
Coming to this legislation:
(4B) A person cannot qualify for an employment allowance for a tax year if the total of the following items is £100,000 or more— (a)the person’s qualifying liabilities for the previous tax year.
And that's it.
So, OP should be able claim the allowance.
In saying this I would quote from RT's as ever enjoyable post:
“in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax: there is no presumption as to a tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax.”
As I can see this allowance is a state aid from 2020 on and the employer should notify HMRC every year to claim the allowance. That claim will be based the previous year's 'qualifying liabilities'.
