In 2019, I wrote about the changes to the Employment Allowance, applicable from 06 April 2020. I have some important information that I would like to convey to the profession and want to do this in a logical fashion:

The Announcement

Budget 2018’s Red Book told us on page 38 (point 59) of changes to the Employment Allowance from 2020/21, with anticipated savings to the Exchequer increasing from £225 million when the Allowance is restricted.

Point 3.11 on page 42 expanded on the details of the restriction, saying:

To target the Employment Allowance (EA) to support smaller businesses, from April 2020 the government will restrict access to employers with an employer National Insurance contributions (NICs) bill below £100,000 in their previous tax year. The EA provides businesses and charities with up to £3,000 off their employer NICs bill. Over 99% of micro-businesses and 93% of small businesses will still be eligible for the EA’ 

A Budget Briefing document for HM Treasury gave few details on how this would work in practice, save to say that the claim would continue to be made via the Employer Payment Summary (EPS) and ‘further guidance will be provided to businesses in due course’.

The Legislation

If you can bear it, have a look at the Employment Allowance (Excluded Persons) Regulations 2020 that implements the changes that I have summarised below.

The Guidance

HMRC have issued guidance in various forms and to various people.  However, perhaps the most publicly-accessible guidance is that on Gov.UK ‘Changes to Employment Allowance’.  As at the time of writing, the ‘how EA works’ guidance has not been updated.

What the guidance does not relay is the horror from 2020/21.  In the first instance:

All Employment Allowance eligibility markers have been wiped at HMRC.  Eligible employers will have to reclaim their entitlement in 2020/21 and every tax year afterwards

Action 1

The first thing for employers to do is to recognise that they will not be eligible if their Secondary National Insurance Contributions in 2019/20 was £100,000 or more.  This will require employers to check on any other employers where they may be a connection.  In this regard, the Gov.UK guidance is good.

Action 2

The Employment Allowance now qualifies as De Minimis State Aid.  This requires employers (probably payroll departments) to consider whether claiming the full value of the Employment Allowance (£4,000) will cause the employer to breach the Euro De Minimis ceiling allowed for that sector.  These are as follows:

Sector De Minimis State Aid Ceiling
Agriculture €20,000 over 3 years
Fisheries and aquaculture €30,000 over 3 years
Road transport €100,000 over 3 years
Industrial (economic activity) €200,000 over 3 years

There are some sectors where the State Aid rules do not apply, for example charities.

The employer / payroll department has to make a legally binding statement on the Employment Payment Summary (EPS), reclaiming the Allowance for 2020/21 and testifying that the ceiling has not been breached.  This involves looking at the De Minimis State Aid claimed or allocated in 2020/21 and adding this to the values received in 2019/20 and 2018/19.  Plus, the employer must use the maximum Allowance value (£4,000), even if this is not the value of the Allowance that will actually be used by the employer.

All of this has to be done using values in Euros.  The Employment Allowance is £4,000, therefore, we are reliant on an appropriate exchange rate to allow the GPB to Euro conversion.

And the Exchange Rate is?

HMRC have consistently said that the exchange rate would be available towards the end of March.  After all, the above legislation says:

‘Using the exchange rate quoted by the European Central Bank for the second to last day of March in the previous tax year’

As at 09 April 2020, the page that the guidance points to does not show an exchange rate for the second to last day of March 2020.

I have queried this with HMRC’s Software Developer Support Team who came back to me and said:

Our Policy team have confirmed that the employers should use the exchange rate for 30 March 2020 which is £1 to €1.1249, they’re working with the web publishing team to get the incorrect guidance updated on GOV.UK.

Employer Action

If they want to reclaim the Employment Allowance for 2020/21, employers need to be aware of the following:

New RTI EPS Fields and Descriptions
Field Name Comment
166 Employment Allowance Indicator

‘Yes or ‘No’

To be ticked if the employer wants to claim the EA for 2020/21.

199 Employer is in the agriculture sector

‘Yes’ to indicate that economic activity is in this sector.

De Minimis amount = €20,000 over 3 years

200 Employer is in the fisheries and aquaculture sector

‘Yes’ to indicate that economic activity is in this sector.

De Minimis amount = €30,000 over 3 years

201 Employer is in the road transport sector

‘Yes’ to indicate that economic activity is in this sector.

De Minimis amount = €100,000 over 3 years

202 Employer is in the industrial sector

‘Yes’ to indicate that economic activity is in this sector.

De Minimis amount = €200,000 over 3 years

203 State aid rules do not apply to Employer For employers where there is no economic activity, e.g. charities or community sports clubs
204 Amount of De minimis State aid (in claim year and previous 2 years) in Euros If one or more of the de minimis State aid business sectors has been selected (data items 199 to 202), complete this item with 0.00, if this is not already shown.
205 Currency of amount of De minimis State aid – always Euros Declare EUR

‘Industrial sector’ means any business that is in operation to make a profit, regardless of whether one is actually made.

So, for 2020/21 claims:

If you are eligible:

  • Identify which sector your business operates in – agriculture, fisheries and aquaculture or road. If it is none of these sectors but is engaged in economic activity, it will be the industrial sector
  • Tick 166 to make the claim, as all previous claims have been wiped at HMRC. So, even if the employer had been claiming it previously, they will still need to flag ‘Yes’.  If the employer mistakenly claims it, this field can be flagged ‘No’ mid-year
  • Tick the relevant sector ‘Yes’ (fields 199 to 202) or leave blank. If State Aid does not apply, tick ‘Yes’ in field 203
  • Populate field 204 with £0.00 (or check whether your software will be doing this automatically)
  • Populate field 205 with EUR (or check whether your software will be doing this automatically)

HMRC previously advised that employers will be notified of successful Employment Allowance claims within 7 days by letter.  Unsuccessful claims will be notified by a Generic Notification Service (GNS) message.

Employers / payroll departments need to be aware that there is some additional work required this year.  Plus, bear in mind the fact that De Minimis State Aid information is probably not readily available with people working from home.

 

Join our newsletter