Employment Allowance was introduced in 2014 in order to reduce the NIC’s liability for small to medium businesses by £3,000. The eligibility rules for an employer claiming the EA will change from April 2020. This measure increases the maximum EA by £1,000 to £4,000 from April 2020. This means eligible businesses and charities will be able to claim a greater reduction on their Secondary Class 1 National Insurance contributions liability.
Employers will have to check if they meet the correct criteria in order to check if they are eligible to claim the allowance. Some of the eligibility rules are as follows:
Eligibility after 6 April 2020
Companies who are able to claim EA in the 2020/21 tax year must have an Employers’ NIC liability less or equal to £100,000 in the previous tax year.
An employer cannot claim the allowance for deemed payments of employment income. While they are not included in the total cost of up to £100,000 for employers’ (secondary) Class 1 National Insurance contributions.
More than one payroll
Add together the employers (secondary) Class 1 NICs liabilities for each payroll, if you have more than one payroll in the previous tax year. You will not be eligible to claim EA if the total amount is £100,000 or more. If the total amount is under £100,000 you should decide which employer makes the claim.
Where companies are connected, you should add together the total employers secondary Class 1 NICs liabilities for all companies in the group.
- £100,000 or more – none of the connected companies will be eligible to claim EA
- below £100,000 – the group must decide which one company will claim
You can read more about connected companies.
De minimis state aid
Check you will not exceed the de minimis state aid threshold
From 6 April 2020 EA will operate as de minimis state aid. This means it will contribute to the total aid you are allowed to get under the relevant de minimis state aid cap in the relevant 3 year period.
If you engage in economic activity
De minimis state aid rules apply if your business engages in economic activity, providing goods or services to the market. You do not have to make a profit. If others in the market offer the same goods or services, it is still an economic activity and de minimis state aid rules will apply. So de minimis state aid will apply to most businesses claiming the Employment Allowance.
If your business falls into de minimis state aid rules
You’ll need to make sure that you have space under your business sector ceiling to get the full amount of EA available.
When you may not fall into de minimis state rules
You’ll not fall under the de minimis state aid rules if you do not engage in economic activity, for example, if you run a charity, or employ someone to provide personal care. However, you may still be eligible to claim EA.
Check other de minimis state aid you get
You’ll need to look at other de minimis state aid you got in the claim year and the previous 2 tax years. This is the relevant 3-year period. Most businesses will not have received de minimis state aid before so will not need to do further checks to check if they are eligible for the EA.
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How de minimis state aid and the relevant threshold are worked out
De minimis state aid and the relevant thresholds are worked out in euros. You should have been told in writing if another aid you have received was de minimis state aid. The letter should also tell you how much you got.
If an individual or business, has not received this notification but believe it is de minimis state aid or wish to check, they should contact the administrator of that scheme.
If not you should convert other aid you have received, and the full amount of EA for the claim year into euros using the exchange rate for April of the relevant year. You can then be sure you do not exceed the relevant de minimis state aid ceiling.
Check the exchange rates you need. You need to make de minimis state aid calculations starting from tax years 2020 to 2021.
If companies are connected, you’ll need to:
- add the totals for each of the companies together
- make sure that, together, they are not more than the relevant sector threshold
State aid ceilings
The amounts that governments can give out as de minimis aid (essentially aid unauthorised by the EU) is based on allowances for specific sectors. For example, farmers can receive significant authorised aid via the Basic Payment Scheme (BPS). The UK’s year-long departure process from the EU does not affect the assertion that this is de minimis aid.
The sectoral thresholds are:
|Primary production of agriculture products||€20,000|
|Fisheries and aquaculture sector||€30,000|
|Road freight transport sector||€100,000|
|Other, industrial (everyone else)||€200,000|
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The three-year fiscal period means looking back to 6 April 2018 and ahead to 5 April 2021 if any state aid has already been paid in respect of the new tax.
Further, If businesses span more than one sector, for example, agriculture and road transport, the Employment Allowance can only be claimed for those working in the agriculture part of the business until that threshold is reached.
Also, if the full amount of Employment Allowance is not used up and there was still space under the higher road transport ceiling, the liabilities incurred by the employees in that part of the business are excluded liabilities.
However, there is no definition of what is de minimis state aid, but it is likely to be any grant from a UK public body, agency or government department paid in sterling. Authorised state aid is often accompanied by a remittance in both Euros and sterling.
Visit also https://careaccountancy.co.uk/tax-news-in-uk/ for all tax affairs that matter.