New rules for employment allowance

The government has published draft legislation for the new restrictions which will apply to the NI employment allowance (EA) from April 2020. Will your clients be affected, and if so, how?

Employment allowance (EA): Since April 2014 most employers have been entitled to a deduction from their Class 1 NI bill currently worth £3,000 per year. In 2020 some businesses will lose their entitlement to this and there will be general changes to the way that the EA works.

Draft legislation: At the end of June, HMRC published draft legislation covering changes to the EA. It was subject to consultation until 20 August 2019 but it's not expected that any of the main points would change, only some fine tuning to ensure that the legislation achieves what the government intended.

Key changes - All employers will be affected by the changes to a greater or lesser degree. The new EA conditions from 6 April 2020 are:

  • Your clients won't be entitled to the EA if their liability to employers' Class 1 NI in the previous tax year exceeded £100,000.

  • They won't automatically qualify for the EA. They must claim it each tax year. This will involve submitting a declaration confirming that they've checked and are satisfied that they meet all the conditions for eligibility.

  • If they become connected with another employer, i.e. they share resources such as premises or staff, they must reassess their eligibility for the EA.

  • The EA will be state aid and counts towards the maximum aid (£200,000) your client can receive in a rolling three-year period. They must have room to accommodate they whole £3,000 EA within the state aid limit or lose their entitlement to it.

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