The Association of Taxation Technicians (ATT) is warning that plans to remove the Employment Allowance from large employers could also impact smaller employers.
From April 2020 the Employment Allowance, which currently provides employers with a reduction of up to £3,000 to their national insurance bill, will no longer be available to larger employers.1 As part of this change, the Employment Allowance will be classified as a ‘de minimis state aid’.2 This could be problematic for small businesses, as there is a maximum amount of de minimis state aid which they can receive in any three-year period. Whilst the state aid rules are part of EU legislation, the Government have stated that they will be retained after Brexit.3
Jon Stride, Co-chair of the ATT’s Technical Steering Group, said:
“The classification of the Employment Allowance as state aid will have consequences for all employers, regardless of their size.
“Importantly, if an employer is already in receipt of other forms of state aid, whether by way of a grant or tax break, this may affect their ability to claim the Employment Allowance in the future.
“Small employers may find it unfair if, because they may be in receipt of grants or tax breaks because they are doing well or contributing something vital to the UK economy, they will no longer be able to receive the existing reduction in their national insurance bill.
“Employers need to ensure that they have capacity for the full £3,000 Employment Allowance within their de minimis state aid ceiling, regardless of how much of the allowance they actually claim.”
Even where small employers do not receive any other state aid, or have plenty of headroom within their state aid limit, they will have new compliance obligations from April 2020.
Jon Stride said:
“They will have to claim the Employment Allowance each 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.”
Recent HMRC proposals also indicate that employers will have to provide extra information when claiming the Employment Allowance in future, including the amount of de minimis state aid they have received in the past three years.4
Jon Stride said:
“Employers should look to ensure they, and their payroll staff, are ready for the changes that will be introduced from April 2020, and have the information they need to ensure that they do not miss out on claiming the Employment Allowance.”
Notes for editors
1.The Employment Allowance, introduced in April 2014, entitles employers to up to £3,000 per annum of their secondary Class 1 NIC bill.
It was announced at Budget 2018, that a new restriction on the EA will be introduced from April 2020 - employers will only be eligible for the Employment Allowance if their total secondary Class 1 liability in the previous tax year was under £100,000.
2. The EU state aid rules are designed to prevent member states from introducing measures which may otherwise distort competition within the single market. Broadly, a measure constitutes state aid if it is an advantage granted by a member state on a selective basis to any organisation that could distort competition and trade in the EU. State aid rules can apply to direct grants or loans, but also to tax breaks. In principle, state aid is not allowed in the EU. However, where a member state believes that a form of state aid would deliver growth or other important objectives, they can request approval from the EU.
From April 2020, the Employment Allowance will fall under the de minimis state aid rules, which permit the Government to not need to seek approval from the EU for a scheme which only gives small amounts of aid. However, there is a ceiling on how much aid any organisation can receive under the de minimis 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).
3. The Government’s guidance note ’State aid if there’s no Brexit deal’ confirms that, in the event of a no deal Brexit, UK competition rules will mirror the EU state aid rules, with only technical modifications to ensure they operate effectively in a domestic context.
4. In June 2019, HMRC released draft legislation and supporting documents for consultations which sets out the new restriction and information requirements.
In their response to HMRC, the ATT expressed concern that these requirements could be unduly onerous and difficult to comply with, and could ultimately result in smaller employers deciding that it is not cost effective for them to claim the EA.