Chartered Accountants & Registered Auditors

Newsletter IconSubscribe to our
newsletter

Your newsletter will be
sent to your email inbox

Bar Separator 1

Bar Separator 2
All initial consultations are free of charge.
Bar Separator 3

Employers must plan ahead for EA restriction

Newsletter issue - September 2019.

The Employment Allowance (EA) is a valuable relief, particularly for small businesses as it potentially cuts the business's national insurance contributions (NIC) bill by allowing a pre-set annual amount to be offset against PAYE NIC costs. The current limit is £3,000, and it is widely available to most employers. However, from April 2020 the allowance is being restricted to smaller businesses with an NIC bill of less than £100,000 in the previous tax year.

Current claims

Most employers with a liability to pay employer (secondary) NIC are eligible to claim the EA, including:

  • sole traders, partnerships and companies
  • charities and those with charitable status such as schools, academies and universities
  • community amateur sports clubs (CASCs)
  • employers of care or support workers

Certain types of business are ineligible to claim the EA deduction, including:

  • personal service companies (PSCs) and managed service companies (MSCs) which are subject to the intermediaries' legislation (IR35). Where there is a deemed payment of employment income, the EA is not available against any employer NICs that arise on the deemed payment. However, the allowance is still available where the company has employees in its own right.
  • single director companies. A restriction was introduced from 6 April 2016 providing that where the only employee paid above the secondary NIC threshold is also a director of the company, the allowance is not available. The restriction can apply in a company which has two or more directors but where only one of those directors is on the payroll and there are no other employees.

Future claims

From 6 April 2020, access to the EA will be limited to businesses and charities with an employer NIC bill below £100,000. At present, around 1.1 million employers claim the EA and the government estimates that around 93% of these will continue to be eligible once the restriction takes effect, with many paying no employer NICs at all.

How to claim

EA is generally delivered by the employer through standard payroll software and HMRC's real time information (RTI) system. However, it isn't given automatically and must be claimed. Claiming is very straightforward - the employer simply signifies his intention to claim by completing the 'yes/no' indicator just once. Although, ideally, the claim should be made at the start of the tax year, it can be made at any time in the year.

The employer will then offset the allowance against each monthly Class 1 secondary NICs payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends.

It is worthwhile checking that the EA has been utilised where possible. If a claim is made too late in a tax year to set the whole allowance against the employers' NIC liability, the employer may apply to HMRC for a refund.

For most businesses, it will be clear whether they will be affected by the forthcoming restriction on EA. However, for those on the cusp of £100,000 in 2019/20, then the timing of, say, bonuses in that year could determine entitlement in the payroll for April 2020.

 

Book a free consultation

Box Arrow

 

Our partners enjoy meeting clients who are looking to get the most out of their accountant and we take time to understand our clients and their business so can offer assistance to you. Set up a FREE no obligation meeting today.

More More...

Request a Callback

Box Arrow

 

DJM Accountants really know how to give you the most powerful, cost effective yet value for money accounting service so request a call back to connect with a partner who will work with you as your business grows.

More More...

Get a Fixed Quote

Box Arrow

 

No-one likes surprises, especially where bills are concerned. We believe you should always know exactly where you stand with fees. We offer a competitive fixed quote for agreed services, and thats exactly what we charge, not a penny more.

More More...

Reduced Tax Liabilities

Box Arrow

 

Tax is a fact of life, it cannot be avoided or ignored so lets work together to ensure everything is in good order to avoid any surprises. Let us protect your interests and minimise your tax liabilities.

More More...