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.
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:
- The employer’s class 1 NIC liability for the previous tax year must be less than £100,000
- 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.
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.
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.
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.
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.