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Employment allowance for new company over £100k

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I know that a company won't be eligible for employment allowance if they've had more than £100k of NI liabilities the previous tax year. However if they're a new company that's just started up, but the likelihood is that they'll have more than £100k of liabilities in this tax year, what are the rules with regards to the Employment Allowance this tax year? Obviously there are no figures from last year to go on, and it's not guaranteed that the liabilities will be more than £100k this year.

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By DKB-Sheffield
04th Aug 2021 17:31

My understanding is that they are eligible UNTIL they are not eligible.

You can either claim ("yes" in EA box of EPS and submit) and then cease if ineligible ("no" in EA box of EPS and resubmit). Alternatively do opposite if you realise they are eligible later in the year).

Personally I'd opt for the first. The EA will be removed retrospectively once it is disclaimed (and client will have an extra £4K to pay).

Check https://www.gov.uk/claim-employment-allowance/how-to-claim for what to do if employer ceases to be eligible mid-year

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By Wanderer
04th Aug 2021 18:01

Don't think that answers the OP's question which is basically can I have the EA in my first year even if my ER NIC is over £100,000 for that year.

OP here's the legislation:-
https://www.legislation.gov.uk/ukpga/2014/7/section/2

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By DKB-Sheffield
04th Aug 2021 18:26

I think the point in question is that there is "no guarantee" the liability will exceed £100K hence, as things stand today, the company will qualify - regardless (assuming it is not prohibited through Public Sector, State Aid etc.)

I will admit to a red herring about disclaiming (based on the regs). I assume this is only in place for companies who don't realise they were ineligible at the start of the current year (of which I guess there will be a number)

I would certainly take a pragmatic approach. Claim EA. If it's wrong HMRC will tell you. If you don't claim, they won't tell you that you can or that you're missing out.

Although not having had the situation with EA, I would expect it to be like quarterly payments. If you pay monthly but could pay quarterly, HMRC will never advise you to switch. However, if you pay quarterly and exceed the threshold, a letter is only a few days away!!!

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Replying to DKB-Sheffield:
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By Wanderer
04th Aug 2021 20:52

DKB-Sheffield wrote:

I think the point in question is that there is "no guarantee" the liability will exceed £100K hence, as things stand today, the company will qualify - regardless (assuming it is not prohibited through Public Sector, State Aid etc.)

Not sure that's the point at all. Isn't the actual point that whether the ER NIC exceeds £100k or not in the current year actually completely irrelevant? Haven't read the legislation in detail but on a quick scan I couldn't see any reference to the current year. Can you point me to any reference to current year ER NIC?

See Hugo's last sentence below.

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Replying to Wanderer:
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By DKB-Sheffield
04th Aug 2021 21:08

Yes, I agree that based on the legislation, this year is irrelevant. As, I assume would next year be if the liability does not exceed £100K in the current tax year.

I actually set out to concede this fact in my second paragraph but failed miserably!

However, I still stand by my assertion that an expectation of exceeding the threshold does not preclude the employer from claiming EA and that IMO the OP should advise a claim be made.

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Replying to DKB-Sheffield:
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By Hugo Fair
04th Aug 2021 18:12

Agree with DKB "that they are eligible UNTIL they are not eligible" ... see The Employment Allowance (Excluded Persons) Regulations 2020 at https://www.legislation.gov.uk/ukdsi/2020/9780111192139/regulation/3 :

(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
(b)where the person is a company, the qualifying liabilities for that previous tax year of each company (if any) to which the person is connected at any time in that previous tax year, and ...

So my reading is that the default position is eligible (subject to Wanderer's link to the primary legislation), UNLESS one of the excluding conditions is met (such as the one about 'connected' companies in previous year).

This year's 'NI liabilities' should therefore only affect the question of next year's eligibility for EA.

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