New rules for Employment Allowance

5th November 2019

Introduced in 2014, the Employment Allowance was designed to encourage small businesses, amateur sports clubs and charities to grow their workforce. There have been a few tweaks along the way but currently eligible organisations are able to claim a reduction in employers (secondary) Class 1 National Insurance contributions of up to £3000 per annum.

The success of the initiative can be seen from Government statistics for the 2018-19 tax year. These indicate that across the UK 80% of claimants are micro-organisations, employing up to nine individuals, with a further 16% of claimants drawn from the small business field. The South West accounts for 9% of all claimants amounting to some 101,000 organisations.

In a bid to further target the Employment Allowance towards the smaller organisations for which it was originally designed, the Government is making three important changes to the system with effect from the 2020/21 tax year.

Firstly: eligibility will be restricted to organisations whose secondary Class 1 NI contributions were below £100,000 in the previous tax year. This includes employers which are connected to others, for example in a group, where the cumulative NI total is not in excess of £100,000. It is important to note here that the defining factor is the amount of NI, not the number of employees; so businesses with comparatively few well paid employees may be excluded from future claims whilst those with numbers of lower paid staff may still qualify.

Secondly: the Employment Allowance is to be seen as state aid and will therefore under EU rules count towards the maximum state aid allowance available in any three year rolling period. This may impact businesses across a number of sectors including road transport, agriculture, fisheries and organisations in receipt of the retail discount. It is important to note here that each sector has its own de minimis threshold so whilst the standard cap is equivalent to €200,000 over three years, aid to the agriculture sector is capped at the equivalent of €20,000 over the same period.

Thirdly: eligibility for Employment Allowance will no longer be assumed with organisations having to certify compliance and claim each tax year. This may potentially impact payroll systems.

Whilst the Government estimates that 93% of all businesses will still be able to claim the Employment Allowance, the fact that claims have to be made on an annual basis will potentially impact on all organisations. It has to be noted here that HMRC are still considering the responses to its technical consultation which closed on 20 August 2019 but any further amendments to the process are currently anticipated to be minor.

Thompson Jenner Partner Ruskin Wilson commented “These changes will impact businesses in differing sectors to greater or lesser extent.  Once HMRC confirm the final details in respect of this scheme Thompson Jenner will liaise with its clients to identify those affected and suggest any changes to accounting practices which may be required.”


If you would like to find out more about the new Employment Allowance rules or meet to discuss any of the tax or business services which we are able to provide, please contact Ruskin Wilson or one of our other specialist Partners on 01392 258553 or 01395 279521 to arrange a free initial meeting.

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