The start of tax year 2020/21 will see increases to the National Insurance Contributions (NICs) thresholds and changes to the requirements for claiming the Employment Allowance which all employers need to be aware of. These changes are outlined below, together with a quick look at some additional NICs announcements which we might see at the Budget.
On 30 January, the Government announced the NIC thresholds which will apply from April 2020.
The biggest change is an above-inflation increase in the primary threshold (the point at which employees start to pay NICs) from £8,632 to £9,500. By contrast, the secondary threshold (the point at which employers start to pay NICs) will only increase in line with inflation to £8,788, ending the current alignment of the two threshold and resulting in employers starting to pay class 1 NICs before their employees do.
The lower earnings limit will also be increased in line with inflation from £6,136 to £6,240. However, the upper earnings limits for both employers and employees will be held at £50,000.
Employment allowance changes
A new restriction on the Employment Allowance (EA) is to be introduced this year. From April 2020, employers will only be eligible for the EA if their total secondary Class 1 liability in the previous tax year was under £100,000.
However, that’s not the end of the story as a number of administrative changes are being introduced at the same time which all employers need to be aware of.
A key change is that from April 2020 the EA will have to be claimed every year in order to receive it – relief will no longer be carried forward from one tax year to the next as it has been to date.
Further administrative requirements arise from the fact that restricting the EA to smaller employers will mean that, from April 2020, it will be classed as “de minimis state aid”.
The de minimis state aid rules exempt the Government from the approval process if a scheme only gives small amounts of aid. However, there is a ceiling on how much aid any organisation can receive under the rules. For most businesses this ceiling will be €200,000 over a three year rolling period (different levels apply for the agriculture, fisheries and road transport sectors).
To comply with the state aid rules, when claiming the EA each year employers will have to indicate whether or not the state aid rules apply to them (they generally will apply – the only reason they might not is if the employer is not undertaking economic activity) and, if they do, which trade sector they operate in.
Employers will also have to make a declaration to HMRC to confirm that:
- they have checked that their secondary Class 1 NICs liability for the previous year is less than £100K;
- they have undertaken relevant checks with any connected companies in order to ascertain eligibility to claim; and
- to best of their knowledge, they:
- will not exceed their relevant de minimis ceiling;
- are the only connected company making an EA claim across the whole connected group; and
- are not aware of any other reason why they would be excluded from claiming EA.
In a welcome move, following representations made by the ATT and others, HMRC have dropped part of their initial proposals which would have required employers to quantify the amount of other such state aid they have received when claiming EA.
Finally, it is worth keeping an eye on the Budget (scheduled for 11 March) as we could well see further announcements regarding NICs.
In particular, the Conservative party manifesto indicated we could see a rise in the EA from £3,000 to £4,000 from April 2020, as well as a new one-year reduction in employer NICs for employers that hire people within one year of leaving the armed forces.