Owner Kate Upcraft Consultancy Ltd
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Employment Allowance: New rate welcome, hoops not

The increase to £4,000 of the Employment Allowance (EA) from 6 April 2020 will be a boost for small employers, but has to be set against the context of the hoops they will have to jump through to claim EA.

23rd Mar 2020
Owner Kate Upcraft Consultancy Ltd
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AccountingWEB 2020 Budget coverage, sponsored by Countingup

The Budget 2020 Employment Allowance increase will, however, be restricted to employers who together with their connected companies have, in aggregate, an employer national insurance (NI) liability of less than £100,000 for 2019/20. Public sector employers who can claim EA, such as schools and universities, can omit any employer’s NI for those caught by IR35 when assessing the £100,000 limit.

De minimis state aid

Restricting EA by with financial threshold has turned it into de minimis state aid, as it supports a subset of businesses only. To grant EA under European law, HMRC needs to have a central record that those claiming it are entitled to the allowance.

The amounts that governments can give out as de minimis aid (essentially aid unauthorised by the EU) is based on allowances for specific sectors. For example, farmers can receive significant authorised aid via the Basic Payment scheme (BPS). The UK’s year-long departure process from the EU does not affect the assertion that this is de minimis aid.   

The sectoral thresholds are:

  • agriculture (€20,000 over a consecutive three-year fiscal period)
  • fisheries and aquaculture (€30,000 over a consecutive three-year fiscal period)
  • road transport (€100,000 over a consecutive three-year fiscal period); and
  • industrial/other (€200,000 over a consecutive three-year fiscal period).

The three-year fiscal period means looking back to 6 April 2018 and ahead to 5 April 2021 if any state aid has already been paid in respect of the new tax.

If businesses span more than one sector, for example agriculture and road transport, the allowance can only be claimed for those working in the agriculture part of the business until that threshold is reached.

If the full amount of EA is not used up and there was still space under the higher road transport ceiling, the liabilities incurred by the employees in that part of the business are excluded liabilities.

Sadly, there is no definition of what is de minimis state aid, but it is likely to be any grant from a UK public body, agency or government department paid in sterling. Authorised state aid is often accompanied by a remittance in both Euros and sterling. If you’re feeling brave you can familiarise yourself with the state aid manual here.

Software specification

Originally, payroll software developers were asked to set up the Employer Payment Summary (EPS) with new fields asking employers to input the value (in Euros) of their de minimis state aid over the relevant period.

Following feedback that this was a huge admin burden the fields will be prefilled to zero, but small employers and agents must still make a legal declaration that they have not exceed their sectoral threshold. Any de minimis state aid must be converted to Euros using the Customs and VAT Eurozone rate quoted for 30 March 2020.  

The additional EPS fields for 2020/21 are:

  • Do you want to claim EA? An eligible employer will select Y and must now initiate a claim each tax year as claims will not roll forward automatically
  • If Yes: do state aid rules apply to you? Y or N
    • Employers that are not undertaking an economic activity (eg, charities, community amateur sports clubs, or employing someone to provide personal care) will be able to declare that the rules do not apply to them.
  • If ‘Yes’ what sector(s) are you in:
    • Agriculture: Y or N
    • Fisheries and aquaculture: Y or N
    • Road transport: Y or N
    • Other industrial sector: Y or N

All sectors the business operates in should be selected and a claim can be initiated at any time in the tax year.

HMRC’s Basic PAYE Tools (BPT) will be updated with the new fields. Ineligible businesses need to take no action as their current claim will fall away at the end of March 2020.

HMRC response

After the submission of the EPS, HMRC will, either reject the claim within 3-5 days via a Generic Notification Service (GNS) message or accept the claim which will be done by letter. It therefore makes sense to wait five days after the April EPS has been sent before making any payment of liabilities for April where you will be offsetting an EA claim against that remittance.

Deemed employees

As HMRC did not have the foresight to include an off-payroll worker marker in the FPS until April 2020, it won’t know if the reason that the employer is still eligible is because they have only exceeded the £100,000 threshold on the basis that employer’s NI for deemed employees has been included.

This could affect small schools who can claim EA and will have been operating the off-payroll rules for 2019/20.  If their claim has been rejected for this reason the Employer Helpline should be contacted to reinstate the claim. You should be aware that as employer’s NI for deemed employees doesn’t reduce eligibility it also cannot be claimed against the EA by an eligible employer.

Replies (2)

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By Rgab1947
23rd Mar 2020 11:03

State aid rules are EU originated so should only last to 31st Dec. After that Treasury and HMRC can make up the rules. Hopefully benign but dont hold your breath.

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By PAMDILL
23rd Mar 2020 11:30

The issue I have with the whole employment allowance, not able to reclaim SSP from HMRC any more is that very small businesses like myself and a couple of my clients who only have 1 or 2 employees do not have the amount of Employers NIC to cover the full Allowance.

However we still have to pay out SSP, so if an employee is off for up to the full SSP entitlement period we are out a lot of money with no payback.

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