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The employment allowance dilemma

Employers need to estimate their total class 1 NIC liability for 2020/21 and in some cases correct coronavirus job retention scheme (CJRS) claims without delay.

21st Oct 2020
Tax Writer Taxwriter Ltd
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How to correct NIC employment allowance claims under CJRS
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Employers and payroll professionals have been grappling with the employment allowance dilemma since April 2020, when the CJRS for furloughed wages came into effect. I described the widespread confusion about whether employers should claim the employment allowance for 2020/21 as well as the employer’s NIC due on furlough pay under CJRS, and we are still waiting for concrete guidance from HMRC.

Help at hand

The ICAEW Tax Faculty stepped into that vacuum with advice to its members. There are three alternative actions to take, depending on the expected total secondary class 1 NIC liability for the whole tax year. The maximum employment allowance available to be set against employer’s NIC for 2020/21 is £4,000.

1. NIC is less than £4,000

The employer should claim the employment allowance for 2002/21, if it also meets the other conditions for the allowance.

Where the employer has claimed employer’s NIC under the CJRS, this claim should be amended to remove the employer’s NIC element. Where the CJRS claim did not include an amount for employer’s NIC, no action is required

2. NIC is more than £4,000 on top of CJRS grant

The employer should claim the employment allowance for 2002/21, if it has not already done so.

The CJRS grant will have included a claim for employer’s NIC, but as the total secondary class 1 NIC for the whole year exceeds the sum of the NIC element of the CJRS claim and the NIC due outside of the CJRS claims, the employer has not overclaimed, considering the tax year as a whole.

3. NIC not covered by grant is less than £4,000

The employer needs to estimate how much of the employment allowance covers secondary class 1 NIC included within the CJRS claims, and then deduct this amount from either:

  • their CJRS claims; or
  • their 2020/21 claim for employment allowance.

The employment allowance claim can be reduced by contacting the HMRC employer helpline. The CJRS claim can be reduced as indicated below.

Correct the CJRS claim

Where the employer needs to adjust an earlier amount claimed under the CJRS as they have doubly-relieved part of their employers’ class 1 NIC, this can be done by amending the next CJRS claim. The final CJRS claim for October 2020 must be submitted by 30 November 2020.

Repay HMRC directly

If there are no further CJRS claims to submit the employer should contact HMRC to get a payment reference number. This can be done by webchat or telephone: 0800 024 1222. There is guidance on how to repay the excess grant electronically, but payment by cheque is not an option.

Once the employer has received the reference number from HMRC they should repay the overclaimed amount with 30 days.

HMRC has the power to raise an income tax assessment equivalent to the excess amount of the CJRS grant, if the employer does not voluntarily repay it. This assessment must be paid with 30 days of the date it is issued (see Factsheet CC/FS48). Strangely even if the employer is a company, the assessment will be for income tax not corporation tax. 

Where HMRC does not raise an assessment and the employer later realises that they had overclaimed the CJRS grant, the employer can add the excess CJRS grant to the income tax they owe for 2020/21, or for a company - the next accounting period.

Penalty possibility

The deadline for notifying HMRC of an incorrect CJRS claim is 90 days after the grant was received, or for grants paid on or before 22 July 2020; 20 October 2020. If notification is not made within these periods HMRC can apply a failure to notify penalty.

However, HMRC confirmed in Factsheet CC/FS48 that it will not apply a penalty where the employer did not know that they had overclaimed the CJRS grant, in other words the CJRS calculation was wrong due to a genuine mistake.

Replies (17)

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By Philip Dykes
21st Oct 2020 09:53

Thank you Rebecca. What about the most effective course of action to take where no claim was made for employers NIC in the CJRS claims up to July 2020 , where the total amount for the year will exceed the employment allowance. We have amended one claim on webchat .............the second time we tried it was nigh on impossible to get HMRC to action it .

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By Emma Braunton
21st Oct 2020 10:17

The issue we are finding is that our clients may have been in the £4k plus CJRS NIC group, but then redundancies have happened and more may happen later in the tax year, which makes the yearly NICS bill harder to estimate.

Thanks (2)
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By clairelkennedy
21st Oct 2020 10:58

This is really helpful. If you didn’t claim NIC as part of CJRS but NIC for the year will exceed £4000 and the EA can you correct an earlier CJRS claim to claim NIC? Is this done by increasing October claim?

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By armstrongbell
21st Oct 2020 11:32

Yes, very helpful thank you. I'm in a similar position to other responders - I didn't claim Er's NI for a client but now their business has recovered it looks as though the Er's NI for the year will more than exceed the EA plus the amount I could have claimed under CJRS. Although if there is a lockdown or other business downturn and they make employees redundant then it might not. Their furlough stopped in July so how do I now claim the extra amount relating to NI? Presumably if things change before 5/4/21 I would have to then un-claim. What a confusing situation in the absence of a crystal ball!

Thanks (2)
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By JLPrice
21st Oct 2020 12:00

Many thanks for the post. We have in fact already tried to contact HMRC on the employer helpline to try and reduce the EA Claim and they flat out refused to do so saying it was not possible. We spoke to 6 different people across different teams including the CJRS and Employer helpline and all were stumped, but adamant the EA could not de restricted. Has anyone else tried to speak to HMRC about this?

Thanks (1)
Replying to JLPrice:
By Emma Braunton
21st Oct 2020 12:12

I rang several different HMRC lines, the line that helped me in the end was the debt management line - they prevented the EA being applied to months 1-4, however, I am still waiting for this data to feed through to my agent dashboard.

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Replying to JLPrice:
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By Sally B
21st Oct 2020 12:31

Hi yes I spoke to employers helpline twice, webchat, payment helpline and the Job retention helpline - all stated that they cannot adjust the amount for EA.
I spoke to our software provider, SAGE, who confirmed with them the EA is backdated to month 1 regardless when in the year you tick the EA box.
Therefore I had no choice but to go back into all our claims that had furlough ni and remove the NI element, just to get the EA straight.

Thanks (0)
Replying to JLPrice:
avatar
By Sally B
21st Oct 2020 12:31

Hi yes I spoke to employers helpline twice, webchat, payment helpline and the Job retention helpline - all stated that they cannot adjust the amount for EA.
I spoke to our software provider, SAGE, who confirmed with them the EA is backdated to month 1 regardless when in the year you tick the EA box.
Therefore I had no choice but to go back into all our claims that had furlough ni and remove the NI element, just to get the EA straight.

Thanks (0)
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By matttaxnpayroll
21st Oct 2020 12:07

What if the company has under-claimed?

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By tom123
21st Oct 2020 12:53

Glad to see that the year is taken as a whole rather than month by month.

Thanks (2)
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By markabacus
21st Oct 2020 16:00

My wife uses Moneysoft and having tried it out in a 'test' system [copy of a client's payroll] we've found we can edit the PAYE record for thepayroll so that EA is not over claimed i.e. adjusting for CJRS element. It's a bit tedious as it will mean amending each month but probably easier than contacting HMRC from what I've read above and the client has been guaranteed the max EA possible.

Only necessary for those with possible EA under £4k

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Replying to markabacus:
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By matttaxnpayroll
22nd Oct 2020 12:36

Your software might allow it but unfortunately that doesn't mean it shows the same at HMRC's end. HMRC just applies EA as an all or nothing from month 1, so unless they can change something you'll have a disparity between the two sets of figures.

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Replying to matttaxnpayroll:
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By JLPrice
22nd Oct 2020 14:44

Agree with matttaxnpayroll, we use BrightPay, and we started to apply the EA from month 5, this did not backdate on our system. Unfortunately this just meant it did not match HMRC's system as the claim was backdated to month 1 showing an overpayment on the account, which will eventually lead to clients getting overpayment letters (albeit a lot slower than any underpayment letters).

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Replying to matttaxnpayroll:
RLI
By lionofludesch
26th Oct 2020 06:35

matttaxnpayroll wrote:

Your software might allow it but unfortunately that doesn't mean it shows the same at HMRC's end. HMRC just applies EA as an all or nothing from month 1, so unless they can change something you'll have a disparity between the two sets of figures.

It's not the employer's fault if HMRC's software isn't up to the task.

Just make sure your records are right and you can explain to HMRC where they went wrong.

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Replying to markabacus:
RLI
By lionofludesch
26th Oct 2020 06:36

I posted a work around for Moneysoft two months ago. Pointless now, obviously.

Glad everybody got sorted. There could've been a lot of PI claims being made.

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Morph
By kevinringer
25th Oct 2020 12:29

We all predicted EA problems so why didn't HMRC? HMRC could have sorted out this mess before it started back in April. But HMRC didn't. Some of us contacted HMRC but didn't get clear rules. Some of us asked questions on the HMRC Agent Forum, but no clear answers. Employers and agents wasted loads of time trying to guess the right rules and we didn't all make the right guess. It's a bit like the holiday pay fiasco: HMRC didn't issue any rules until the week after Easter when we all needed to rules the week before Easter.

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Replying to kevinringer:
RLI
By lionofludesch
26th Oct 2020 06:16

kevinringer wrote:

We all predicted EA problems so why didn't HMRC? HMRC could have sorted out this mess before it started back in April.

It's very poor stuff from HMRC.

Once again, we have a demonstration that they just don't understand working from the sharp end.

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