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Confusion over employment allowance claims

Employers are confused as to whether or when they should claim the employment allowance, and the HMRC computer has been ignoring some claims when they are made.

14th Aug 2020
Tax Writer Taxwriter Ltd
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The claim for employment allowance (EA) should be a simple procedure for employers, but from 6 April 2020 two further conditions for claims were added:

  1. The employer’s class 1 NIC liability for the previous tax year must be less than £100,000
  2. The business must not receive state aid in excess of its trade sector threshold, as the EA now counts as state aid.

As Kate Upcraft explained in March, the employer must complete new fields on the EPS to confirm requirements for condition 2) above. When HMRC receives the EA claim it will reply with a letter to confirm the EA is given as de-minimise state aid. Those letters have taken some time to arrive, but the employer doesn’t need to wait for this letter before starting to use the allowance.

When to claim

The maximum EA for 2020/21 was increased to £4,000, but this coincided with the introduction of the furlough scheme and the CJRS grants.

Where an employer had their entire workforce on furlough for April to July, their full payroll costs, including employer’s NIC and workplace pension contributions should have been covered by the CJRS grant. In such cases, it made sense not to claim the EA until at least some employees came off furlough, or until August when the amounts payable under the CJRS changed.

This is the advice from the ICAEW: "Eligible employers can claim the employment allowance at any point in the tax year they are claiming for, or for four years afterwards. If you have claimed or will claim the CJRS grant for employer NIC, you must ensure that you do not receive relief for the same employer NIC costs twice.”

HMRC confirmed to AccountingWEB that this is a correct approach with this statement: “It is allowable for employers to claim the EA (late) for liabilities which are under £4,000, however, they will need to take additional care to ensure that they do not receive relief for the same liabilities twice.”

The important words are “the same liabilities twice”.  The key point for employers is that both the EA and the CJRS scheme give employers NICs relief – ie some of the cost is met. However, employers cannot get this relief twice for the same month. For example in May 2020, you cannot claim NICs relief under the EA and also under the CJRS.

Late claim

From 1 August 2020, the CJRS grant does not cover the employer’s class 1 NIC for employees on furlough. It thus makes sense to now make a claim for the EA so it can be set against the employer’s NIC for August and later periods.

Where a late claim is made, the employer should check that after the date of claim at least £4,000 of employer’s NIC will be due, and the EA will not be set against employer’s NIC that has been claimed under the CJRS.

In normal times, if the EA is claimed late in the tax year, when most of the employer’s NIC for the year has already been paid over to HMRC, the unused EA can be set against other taxes payable by the employer such as PAYE or CT. It is not acceptable to allocate unused EA for 2020/21 against other taxes for the year, when a CJRS grant has also been claimed that covered employer’s NIC.

Software problems

This policy of delaying the EA claim until July or August does not always fit with the internal logic of payroll software. For example, HMRC’s Basic PAYE tools allow the employer to claim the EA in the first RTI return for the year, or not at all.

AccountingWEB member Partyondudes reports that Moneysoft backdated the set-off of the EA claimed in July to set it against the NIC liabilities in April to June, which were fully covered by the CJRS grant. What the software did was perfectly correct (ie backdating it to the start of the tax year). This is confirmed in HMRC’s own guidance on claiming the EA after the start of the tax year. 

HMRC’s statement about not claiming for the same liabilities twice and also stating that the EA can be claimed at any point in the tax year, or even after the year end, appear to provide conflicting guidance. 

Ignored claims

Some employers have received letters and calls from HMRC’s debt management department this month, accusing them of deliberately underpaying the PAYE and NIC due for April to June. The amount that HMRC says is due equals the employer’s NIC for the months concerned.

This problem appears to be a fault with HMRC’s National Insurance and PAYE System (NPS). For some reason the NPS has not picked up the employer’s claim for EA made in the first quarter of 2020/21. It is a known problem, which HMRC says will be fixed by its IT business partners by 19 August.

In the meantime, the employer can confirm whether their EA claim has been accepted by checking their business tax account (BTA). Unfortunately, tax agents can’t access the BTA on behalf of clients.      

Not over    

This is still an on-going issue. HMRC cannot seem to answer the question which is vital for employers. Aside from ignoring claims that have already been made, due to be fixed, how will HMRC allow the £4,000 employment allowance relief to be used from the point that the CJRS relief stopped at the end of July 2020? This action is not claiming for the same liabilities twice.

Replies (16)

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By Paul Crowley
15th Aug 2020 14:11

This has been so seriously misunderstood by Aweb Any Questions OPs and responders. Thanks, as despite prior advice by ICAEW cleared with HMRC and Any Answers live explaining the position, I am confident a lot of accountants and PAYE people made bad decisions at outset, followed by others who unnecessarily put through overclaims to repay.

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By bendybod
19th Aug 2020 10:06

Yep, I originally ticked the box on an EPS to claim the EA. Then I realised that I was going to need to furlough a proportion of staff so submitted another EPS to reverse the claim.
My software has been calculating the EA correctly and I have been submitting RTI returns each month which show the figures as they should be (now claiming EA again as no longer furloughing staff). HMRC online services has consistently been out by the employer's NI.
I have been paying what online services says is due on the basis that it will correct itself over the whole year. At the moment today (when they're supposed to have it fixed by) HMRC online services is still showing exactly the same as it has been all along. I will check it again before I pay them on Friday but am confident that I have not claimed for the same period twice. OK, they may charge me interest on the Employer's NI contributions for the first couple of months of the year if they do correct the system.

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By Mr J Andrews
19th Aug 2020 10:07

Isn't that what current Govt. legislation and HMRC guidelines are now all about ? Confusion !
Throwing in the Revenue computer for good measure guarantees perplexity.

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By djn24
19th Aug 2020 10:10

When making the claims under CJRS, we kept track of the employers NI and didn't claim for the first £4k as we assumed that this would be claimed as normal through the payroll.

Is this now incorrect?

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Replying to djn24:
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By libraBE
19th Aug 2020 11:04

Where the £4k EA totally covered the annual ernic liability, it was simpler to exclude ernic from cjrs claims.
But if insufficient, the best outcome for agents was to claim ernic in cjrs claims, and only start to claim EA once ernic was excluded from cjrs claims.
The late onset of EA claim has thrown the HM system, and some payroll softwares, which backdated EA to April, once it was instigated. This then duplicated the claim if ernic had been added into the cjrs claims.
For employers whose staff were not 100% furloughed, it took lots of analysing, to achieve the most cost effective outcome.

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Bee
By May bee
19th Aug 2020 10:16

HMRC's guidance states that to prevent relief for the same Ers NI twice you can do 3 things including "contact HMRC via the employer helpline to restrict the value of your Employment Allowance claim".
Sounds simple.... except this is HMRC we are dealing with.
I decided to call them Friday to ask how this would work (noting that actually such a restriction can't really be done until the EOY as you don't know if you'll accrue £4K more in Ers until then)..... Ooh er the first HMRC person said, i've never heard of restricting it, i'll transfer you.... Ooh er the next 'technical advisor' said, well we've got guidance for that, i'll put you on hold... after said hold I was then advised that she would call me back in 10 mins.. that was Friday and still no call back!

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Matthew Coates
By justme
19th Aug 2020 10:30

"What the software did was perfectly correct (ie backdating it to the start of the tax year). This is confirmed in HMRC’s own guidance on claiming the EA after the start of the tax year. "

I don't agree with this. The guidance, as linked in this quote, states "You start claiming the allowance on 30 June (July will be the first month you can use the allowance against your employer secondary Class 1 NICs liability)." There is a further example stating that if the liability for ers NIC is £500 per month, and the first month it is applied is July, then only £3,500 of allowance is left for use in August onwards. I interpret this as confirming that employment allowance CANNOT be backdated to the start of the tax year. Moneysoft has got this wrong. Iris also has this wrong. I notified Iris about this and they didn't agree, but it seems pretty black and white to me. Our new software provider agreed with us and they have ensure their system does NOT backdate the employment allowance. Their interpretation of the guidance from HMRC is the same as ours.

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By arthvirg230
19th Aug 2020 11:22

So - if i'm reading this right - many of my payroll clients have been disadvantaged by claiming the EA at the start of the year when they could have claimed the ers nic under the JRS grant? To remedy this i'm thinking of doing the following:
1. adjust the next furlough claim to claim the nic we hadn't previously claimed.
2. telling the client to "pay" this over to HMRC
3. adjusting the payroll record to unclaim the EA in the earlier months- -so we can claim in future month.
4. writing to HMRC in black and white advising what we have done.

some of my clients will have been disadvantaged by between £1600 -£4000 by this that's a lot of money for a struggling small business .

Would anyone else agree this is worth a try?

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Replying to arthvirg230:
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By kathyk0410
23rd Aug 2020 11:19

I have put similar posts on AW agreeing that it is totally unfair. Not sure how it can be remedied but something needs to be done as like you we have clients who have been disadvantaged by this. Any update on your research into solutions would be appreciated.

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By Charlie Carne
19th Aug 2020 11:28

As usual, HMRC make life far more complicated than it need be. HMRC have made it clear that it is perfectly acceptable to claim the er's NI under CJRS and also make a later claim for the £4k EA, so long as er's NI that is payable for the post-furlough period exceeds £4k. In this way, none of the er's NI is claimed twice.

Given the above, it seems utterly daft to penalise businesses that are efficient by always claiming their EA in month 1 and, thereby, restricting it if a claim was also made for er's NI under CJRS, while happily allowing the full EA to be relieved for inefficient businesses that forgot to claim it in the early months of the tax year. Surely HMRC should look at EA claims as though they are made for the tax year as a whole and allow them to the extent that there is sufficient er's NI at any point in the year that is not also claimed under CJRS. The date on which the EA claim is made should be irrelevant to its eligibility.

Thanks (3)
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By LucyJSanger
19th Aug 2020 11:59

An extract from HMRC guidance dated 13 Jun 20 states that 'Employers who delay their Employment Allowance claim and have unused Employment Allowance available at the end of the tax year can use this to reduce other tax costs. Employers who have received a grant for employer National Insurance contributions costs through the scheme should deduct the amount of grant they have received from the amount of Employment Allowance they have left before they use it, if not doing so would result in receiving relief for the same cost twice. Attempting to get relief for the same costs twice is a fraud and may result in claims being investigated' - surely therefore it doesn't make any difference overall to claim early and not reclaim through the CJRS?

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Replying to LucyJSanger:
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By mands44
24th Aug 2020 10:01

Hi so is this definitely the case? It was my initial understanding...for example claim ERNI under JRS for say months 1-4 then trigger EA for months 5-12 deducting any JRS claim already made..i asked HMRC about this on a webchat where i got the answer yes thats correct then after much deliberation he had a total uturn and said no this couldnt be done. I then called employers helpline to be told I cant trigger EA part way through the year as it will automatically put the £4k credit on the account and any claim ive made under JRS should be adjusted for by reducing my next JRS claim in order to claim EA. As a bureau this is making matters very confusing over what to do. I hope im right in just triggering after furlough...Should we maybe be calling HMRC and restricting EA to the £4K less ni claimed already under JRS? What if £4k has already been claimed on JRS just dont trigger EA at all? Help!

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By Ian McTernan CTA
19th Aug 2020 12:57

This is where HMRC's systems are a total failure:

business tax account (BTA). Unfortunately, tax agents can’t access the BTA on behalf of clients.

As for the allowance, why do HMRC have to make it so complicated? Surely the easier solution to support those businesses would be to carry on as normal, the small additional amount of money would come in very handy covering all the other costs of the business whilst they deal with the Covid 19 issues.

Probably a drop in the ocean compared to the total support costs.

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By Sally B
28th Sep 2020 14:07

I have just spent hours going round in circles speaking to employers helpline twice, payment helpline and the job retention helpline - and still no clearer what to do.... any advise please?
I have a client for whom I am about to close their scheme.
I claimed ERNI through furlough M1-3 , total £308.01.
I ticked EA on our software once furlough Ni was finished so customers have not overclaimed.
HMRC have backdated the claim to month 1 and now the HMRC account is sitting £308.01 in credit.
So our client doesn't owe anything, but if I try to close the scheme HMRC may try to send this credit back to the client?
Nobody at HMRC seems to have a clue what to do. And following on from a point above, the employers helpline cannot decrease the EA amount down from £4000 contrary to their website.

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Replying to Sally B:
Matthew Coates
By justme
28th Sep 2020 20:31

HMRC have a confirmed issue. When software sends EA to HMRC it doesn't sent figures. It only sends a flag which activates the EA. HMRC have admitted that they have come across an issue on their own systems whereby they are not recognising the time period that the flag is sent, and all EA claims are being backdated by HMRC to April. This isn't a software provider issue - software providers are compliant. This is an HMRC issue and they recognise it as such. In the meantime, no guidance has been given on how we're expected to handle it.

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By booksbalanced
29th Sep 2020 15:14

Could you not just close the scheme, and then notify your client that if the refund is sent to the client, they will have to send it back to HMRC, and that may well only be achieved by adjusting the Furlough Claim.
Not ideal, but waiting for HMRC to fix their system, before you can close this Payroll scheme, could be a long wait, making further RTI filing (at nil) necessary?

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