Employment Allowance is Changing from April 2020

Following draft legislation published by the government, the NI Employment Allowance for businesses will be restricted from April 2020. The legislation was subject to consultation in August however, this is not expected to have changed the main features.  

What is Employment Allowance?

Employment Allowance has entitled businesses, charities and amateur sports clubs to a deduction of £3,000 per tax year to their Class 1 NI bill. Coming into effect from April 2014, it initially started at £2,000 before rising to £3,000 in April 2016. The allowance is claimed through payroll software and is available to one company within a company group and once claimed, the application is automatic for the successive tax years. There are some restrictions that prohibit businesses from claiming the allowance;

  1. a company cannot claim the allowance where the director is the sole employee
  2. the allowance may not be offset against any deemed payments of employment income
  3. no allowance is available where an employer is claiming it through a connected party
  4. employments for personal work
  5. the employer is a public authority
 What Will Change?

The draft legislation introduces new changes that come in to effect from April 2020 and will affect all employers in one form or another. The new restrictions that will come into place are as follows;

  • If you Class 1 Ni liability in the previous tax year was above £100,000, then no allowance is available
  • Unlike previous years where your claim is rolled-over, you will now have to claim it each tax year. A declaration will be required to confirm you qualify
  • the EA will be state aid and counts towards the maximum aid (€200,000) you can receive in a rolling three-year period. You must have room to accommodate the whole £3,000 allowance or lose your entitlement to it

Whether you are a small or large company, you will be affect in some capacity. Ensure that you and your accountants are prepared come April 2020.