Sage Business Cloud Payroll

Employment allowance changes from April 2020

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

What’s changing?

From 6 April 2020, employment allowance for eligible businesses is increasing from £3,000 to £4,000.00 per year.

If your company's national insurance (NI) bill was £100,000 or more in the previous tax year, your company can no longer claim employment allowance.

Employment allowance is now considered a type of State Aid. This is because it’s essentially placing some businesses in an advantageous position over others which could potentially distort competition and trade.

If you don’t qualify, just record No on the EPS when asked Eligible for NI Employment Allowance.

What does this mean?

The change effectively withdraws the employment allowance for medium to large sized companies, with approximately 100,000 employers affected by the change. However over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.

Regardless of the size of your company, you can’t claim the employment allowance if:

  • You’re the director and the only employee that’s paid above the secondary threshold.
  • You employ someone for personal, household or domestic work, unless they’re a care or support worker.
  • You’re a public body or business doing more than half of your work in the public sector, unless you’re a charity.
  • You’re a service company working under IR35 rules and your only income is the earnings of the intermediary.

From April 2020 employment allowance falls under the de minimis state aid rules. For most businesses these rules place a €200,000 ceiling on the amount of aid a business can receive over a rolling 3 year period. You need to make sure any employment allowance claim you make doesn't push your business above this limit.

More information about employment allowance changes is available from the government website.

What do I need to do?

We recommend you submit your application for Employment Allowance as soon as you start the new tax year.

To apply for Employment Allowance for the new tax year:

  1. From the Summary tab, click Record Claim.

  2. Enter the details of your employment allowance claim:

    Note:

    You must choose an industry sector before submitting your claim. If you are not sure what sector applies to your business, contact HMRC.

    Industry Sector*

    Agriculture

    Fisheries and Aquaculture

    Road Transport

    Industrial

    State Aid Rules Do Not Apply

    Select the industry sector that applies to your business.

    If none of the named sectors applies to you, either select:

    Industrial - if the state aid rules apply to your business

    or

    State Aid Rules Do Not Apply - If your business does not fall under state aid rules.

    State Aid Claimed € 0.00

    For the 2020/2021 tax year, you do not need to enter this value. HMRC will check this for you.

    The value is listed in Euros because the thresholds are set by the European Commission.

  3. Click Next.
  4. Confirm the details you're submitting to HMRC then click Submit.

You can view the status of your claim from the Summary tab:

HMRC then have 5 working days to send you a letter or email confirming whether your application has been approved.

Update the EPS for each completed reporting period

  1. From the Summary tab, click Record Payment / EPS.
  2. Change the Eligible for small employer's relief drop-down menu as required.
  3. Complete the P32 payment as normal.

The option you selected in the Eligible for small employer's relief drop-down is automatically selected for the remaining payments you submit in the current tax year.

How to revert an Employment Allowance claim

If you need to revert a previous claim for Employment Allowance and have submitted an EAC via the new feature:

  1. From the Summary tab, click Record Payment / EPS.
  2. Change the Eligible for small employer's relief drop-down menu to No.
  3. Complete the P32 payment as normal.

This change in status is then transmitted to HMRC and the summary page in Accounting is updated to show that you are not eligible.

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