Employment Allowance Changes 2020

Businessman counting money

From April 2020, HMRC are introducing new rules and processes for claiming employment allowance.

What will be changing?

From the beginning of the new tax year in April 2020, HMRC will only be making the £3000 per annum Employment Allowance available to businesses whose Employer National Insurance contributions bill will be below £100,000 in the current tax year. The same rule will apply to UK charities as well.

For companies whose ERS NICs are above £100,000 in the current tax year, they will no longer be able to claim the Employment Allowance.

In Sage 50 Payroll, this means that after the current tax year-end has been processed, you will need to ensure that the   ‘Eligible for Employment Allowance’  checkbox found in the Company details settings tab is unticked.

The reason for the change is because the Employment allowance is now considered a type of State Aid and is effectively giving some businesses an advantageous position over other businesses which in turn could potentially distort competition and trade within the European Union.

What do the changes in employment allowance mean?

The change will effectively withdraw the Employment Allowance for many medium to large sized companies, with approximately 100,000 employers affected, but leaving 93% of small businesses still eligible to claim for the allowance.

Regardless of the size of your company, you have not been able to claim the Employment Allowance if you all into one of the following categories:

  • If you are a director and the only employee who is paid above the secondary threshold
  • If you employ personal, household or domestic workers. The exception being if they are a support or care worker
  • Public bodies or a business that is doing more than half of your work in the public sector. Again, the exception is working for a charity.
  • Service companies who supply services where some of the income earned falls under the IR35 rules. However, if other income is outside the scope of IR35, then you may be able to make a partial claim for the Employment Allowance. Professional advice should be sought on your specific circumstances.

Things stay the same until the end of the current tax year. It may be worth checking to see if your business or charity is still entitled to claim the Employment Allowance from the start of the new tax year in April 2020.

Sage 50 Payroll updates will include the change to the Employment Allowance alongside all regular legislation changes when they are released in Spring 2020.

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