By Lynne Gowers on 31st August 2019

Employment Allowance changes from April 2020

Employment Allowance currently allows certain businesses who employ staff to reduce their National Insurance bill by up to £3000. However important changes to the eligibility criteria are due to be introduced from April 2020.

Employment Allowance – background

The Employment Allowance scheme was first introduced in April 2014, giving employers a reduction of £2000 against their Employers’ NI bill.

In April 2016 the value of the relief was boosted to £3000, and also at this time, the scheme was reformed to exclude single-director companies.

For 2019/20 the Employment Allowance remains at £3000.

The allowance is claimed via the payroll process, as the liability arises. It reduces a company’s Employers’ (secondary) NI each time they run payroll, until the £3000 allowance runs out or the tax year comes to an end (whichever is sooner).

According to the Government, 450,000 small firms benefit from the scheme, with around a third paying no Employers’ NI at all.

However the scheme is very expensive, purporting to cost the treasury around £2 billion, hence the announcement to scale it back.

Eligibility up to 5th April 2020

Until 5th April 2020, businesses with employees can claim the Employment Allowance, unless:

  • The employee is employed for domestic duties eg. nanny or gardener
  • The sole director is the only employee paid above the secondary earnings threshold
  • The business is a public body or is doing more than half of its work in the public sector (unless it is a charity)
  • The company only has deemed employment income under the IR35 rules.

If your business is in a group of companies or has related companies under the same control, only one company in the group can claim the allowance.

Eligibility from 6th April 2020

From the 6th April 2020, the Employment Allowance will only be available to smaller businesses who had an Employers’ NI bill of £100,000 or less in the previous tax year.

The existing restrictions outlined above will also continue to apply.

How many businesses will be affected by the change?

Needless to say, it will be larger businesses who will bear the brunt of this reform.

Government estimates suggest that over 99% of micro-businesses and 93% of small businesses will still be eligible for Employment Allowance, so long as they are able to work out whether they are eligible under the new rules.

Consultation

The Government is currently consulting on the draft legislation which will reform Employment Allowance to make it only available to smaller businesses. The consultation closes on 20th August 2019 and can be viewed here

Further information

You can get further guidance on the Employment Allowance here

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Written by Lynne Gowers
Disclaimer Although we attempt to ensure that the Information contained in this publication is accurate and up-to-date at the date of publication it may not be comprehensive, we accept no liability for the results of any action taken on the basis of the information they contain and any implied warranties, including but not limited to the implied warranties of satisfactory quality, fitness for a particular purpose, non-infringement and accuracy are excluded to the extent that they may be excluded as a matter of law.

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