We knew that Employment Allowance reforms were on the way. Budget 2018’s Red Book warned 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 no further details on this reform save to say that ‘further guidance will be provided to businesses in due course’.


When I read this announcement, I immediately thought of the administration burden for employers given that it was no longer going to be available to all. From April 2020, employers / payroll departments / agents would have to look at the Secondary (employer) NICs bill in the previous tax year and reassess eligibility.

Not too much of a burden. Plus, any burden is offset by the admirable intention which is to target the Allowance at those employers that will actually benefit most.

Legislatively, I thought, this would be relatively easy to achieve by making changes to the NICs Act 2014 by way of Regulations.

The Reality

On 25 June 2019, civil servants at HMRC embarked on a ‘technical consultation’ on the draft legislation and related documents as follows:

What is abundantly clear from reading all of these is that this is not simple at all for employers / payroll departments / agents. The Employment Allowance will be regarded as part of ‘de minimis State Aid’, necessary to remain complaint with European Union (EU) State Aid rules. Will these apply after EU Exit? Probably so in some form or another.

Which brings into play two definitions that payroll professionals may never have had to consider in their lives before.

What is State Aid?

State Aid is regarded as monies given selectively to organisations through state resources – i.e. £3,000 given to some companies by the UK Government. The selective provision of money could provide those organisations with a competitive advantage over organisations that are not in receipt of it. The EU says that this could distort competition and trade.

Professionals might want to have a look at the State Aid Manual published by the Department for Business, Energy and Industrial Strategy (BEIS). This is publicised by the Department for the Economy in Northern Ireland, therefore, we can safely read this knowing that it applies UK-wide.

What is De Minimis State Aid?

The EU says that small amounts of State Aid are unlikely to distort competition and trade. Therefore, in 2013 it introduced the De Minimis Regulations that apply in all Member States. These Regulations say that a ‘small’ or de minimis amount is equal to €200,000 over 3 consecutive fiscal years – note that this is a Euro value! So, employers can receive the Sterling equivalent of €200,000 over these 3 years without the need for them to record and report the amount of funding that they have received (thereby remaining compliant with the State Aid requirements in the original Treaty on the Functioning of the EU).

However, there are separate EU Regulations relating to de minimis amounts that apply in specific sectors:

  • Road freight €100,000 (over the 3 years)
  • Agriculture €20,000 (over the 3 years)
  • Fisheries €30,000 (over the 3 years)
The burden?

As well as the provision about employer NICs in the previous tax year being £100K or less, the Regulations provide that employers cannot receive the Employment Allowance unless it qualifies as de minimis State Aid. What this means is that, in practice, if the full amount of the Employment Allowance was claimed and it exceeded the de minimis threshold, that employer is not entitled to the Allowance.

The complication is that the de minimis limits are in Euros but the Allowance is in Sterling. Therefore, the employer is required to convert the Allowance to a Euro value using an exchange rate on a particular date. Then, add the values together to check that they are not exceeding the de minimis value for that sector.

This will involve significant process changes, both internally and for software developers:


Do payroll departments maintain or even have access to State Aid values? I would guess not. So, for the first time, organisations will have to pass this information to payroll so that they can check they are not exceeding the de minimis amount for their sector.

Or, at the very least, someone in the organisation will have to confirm to the people processing payroll that they are not exceeding the de minimis ceiling. The reason for this is that the Employer Payment Summary (EPS) in 2020 will contain a number of declarations confirming that the ceiling has not been exceeded. If the declarations are not completed, the Allowance cannot be claimed.

This puts payroll professionals in a very difficult position. According to HMRC’s TIIN, there will be a one-off administrative burden of £9.2 million and an ongoing annual administration burden of £0.6 million. It is, perhaps, reassuring that the TIIN does recognises that this change will have a ‘significant impact on nearly 1.2 million businesses’.

Given this administration burden on employers, it makes you wonder if the ones likely to be affected will even bother to claim the £3,000. Surely, that cannot have been Mr Hammond’s intention when he presented his Budget in 2018.


Software developers are similarly impacted, though this does not seem to have been recognised in the TIIN.

All businesses will cease to be entitled to the Employment Allowance from 06 April 2020 and will have to reapply via the EPS. This will be redesigned and the following will be additional reporting requirements, all facilitated by software but completed by the person processing the EPS:

  • The total amount of State Aid received collectively across all connected companies for the year of claim and in the two tax years immediately prior to the year of claim – in Euros
  • A declaration to HMRC confirming secondary NICs in the previous tax year were less than £100K
  • A declaration to HMRC confirming that the relevant checks on connected companies have been performed in order to ascertain eligibility in this regard
  • Declarations that the de minimis limits have not been exceeded for that sector and identifying that sector
  • A declaration that they are the only company in a connected group making the Allowance claim

Software developers can make these changes, so long as HMRC’s civil servants issue prompt and accurate specifications.

The real issue is the burden on employers and the payroll department. Which leads me to ask:

Why payroll?

Whether or not payroll professionals should have to even consider State Aid is another argument! Clearly, a Budget announcement has not been so easy to implement without considering it.

Which brings into question whether the announcement at Budget 2018 was properly researched at all before it was written down for all to see.

It seems to me a clear case that an announcement has been made and written down, only for a civil servant to come along and say ‘is there an impact on State Aid here?’

Respond to the technical consultation

Many employers will be unaffected by this and will be able to reapply for the Employment Allowance as they did when it was first introduced.

However, all employers will need to familiarise themselves with the legislation and the guidance. In this regard, HMRC have committed to writing to current claimants of the Allowance ‘before the end of this tax year’ – see this at the bottom of the TIIN together with HMRC contact information.

It is absolutely incredulous that an announcement was made that impacts employers and payroll professionals so greatly.

We have an opportunity to express our surprise and respond to the technical consultation by 23 August 2019 as follows:

E-Mail to nics.correspondence@hmrc.gov.uk

In writing to:
Employment Allowance technical consultation,
3C/15 100 Parliament Street,

What next for payroll?

Civil servants clearly believe that RTI and employers have capacity and capability to do things that are outside of their remit. Which makes me wonder what is next for payroll professionals:

  • Renewals of driving licenses?
  • Passport applications?
  • Solving and delivering EU Exit?!

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