Posted December 11, 2019

Changes to Employment Allowance from April 2020

In April 2014 the government introduced the Employment Allowance.  This allowed eligible businesses to reduce their annual Employers Class 1 National Insurance bill by up to £3,000.  However, from 6 April 2020, there will be changes to the employment allowance rules.  These changes mean that not all businesses that are currently benefiting from the Employment Allowance will continue to benefit.

The Current Rules

Most businesses can claim the employment allowance.

Freelancers, contractors and other individuals working on a self-employed basis and therefore subject to Class 2 and Class 4 NIC are not eligible.  Only businesses operating a PAYE scheme can benefit from the Allowance.

You must employ staff, you cannot claim if you are the director and only employee paid more than £8,632 (the secondary threshold for 2019/20)

You are also not eligible if you employ someone for personal, household or domestic work eg a cleaner, nanny or gardener – unless they are a care or support worker

If companies are connected, only one company can claim the Employment Allowance.

If the business operates two PAYE schemes they can only claim the Employment Allowance under one scheme.

Further guidance on eligibility for employment allowance is available on the gov.uk website.

What are the Key Changes

From the 6 April 2020 only small businesses will be able to claim the Employment Allowance (a small business is defined as one with an NIC bill of less than £100,000).

Businesses will not automatically qualify for the Employment Allowance instead it must be claimed annually via a declaration.

The Employment Allowance will be classified as state aid and will count towards the maximum aid you can receive in a rolling three year period.

Further Information

If you require further information on this topic, please contact Tanis Speir on 0113 2582437.

Written by

By Tanis Spier, Payroll Manager, Whitesides Chartered Accountants