From April 2020 the Employment Allowance is changing, restricting it to smaller companies who have a National Insurance contribution (NIC) bill of below £100,000 in the previous tax year.
What is the Employment Allowance?
The Employment Allowance is an annual amount that is currently available to all businesses and charities (with some exclusions) to offset against their Class 1 secondary NICs bill. The current amount is staying at £3,000 for the 2019-20 period. The Employment Allowance was implemented in April 2014 to support employers in the growing of their company and the hiring of new employees.
Why is the Employment Allowance changing?
The allowance is a flat rate that is not affected by the size of the employer and hence is less likely to be an incentive for larger employers. As a result, the government has decided to restrict who can receive this allowance, targeting it at smaller businesses.
Who can claim Employment Allowance from April 2020?
From April 2020 an employer will only be entitled to the Employment Allowance if they had an Employer NIC bill of less than £100,000 in the previous tax year. This change looks to withdraw Employment Allowance from medium to large sized companies, with many employers with a gross annual wage bill of more than c. £850k affected by the change.However, smaller companies still benefit with an estimated 99% or more of micro-businesses and 93% of small businesses remaining eligible for the allowance.
Reasons why you cannot claim Employment Allowance:
• You are the director and the only employee paid above the Secondary Threshold
• You employ someone for personal, household or domestic work (au pair, cleaner)- unless they are a care or support worker
• You are a public body or business doing more than half your work in the public sector (local councils, NHS services) - unless you are a charity
• You are a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)
How can MSP help?
At MSP, we have a great Payroll team who can assist and advise you on these changes to Employment Allowance. For further assistance please contact our Head of Payroll Kate Furley on 01252 733683 or at Payroll@mspsecretaries.co.uk