The Budget saw the maximum employment allowance increase by £1,000 to £4,000 from April 2020, but the government has held firm on plans to restrict the relief to employers with a NICs' bill of under £100,000
All businesses, charities and community amateur sports clubs eligible for the employment allowance, whose secondary class 1 National Insurance contributions (NICs) liability is over £3,000 a year, will be able to claim the larger reduction.
The employment allowance was introduced in 2014 in the National Insurance Contributions Act 2014 and was initially a relief of up to £2,000.
In April 2015, it was reformed to exclude employers of personal or domestic staff (except care or support workers) and from April 2016, the value of the relief was increased to £3,000 and single director companies were excluded.
The government has already announced it is being reformed from April 2020 to restrict access to employers whose NICs liability in the previous tax year was under £100,000, in a bid to ensure the relief remains targeted at the smallest companies.
Earlier this year HMRC removed the requirement for employers to provide information about other de minimis state aid they have received or been allocated as part of their claim.
From 6 April 2020 employment allowance will be operated as de minimis state aid. It will be available to all employers who meet the secondary Class 1 NICs’ eligibility criteria, provided they have space in their relevant de minimis state aid limit(s) to accommodate the annual amount of the employment allowance, regardless of whether they would have that level of secondary Class 1 NIC liability.
The Treasury says the moves s designed to allow small, growing enterprises to take on staff without incurring additional NICs liabilities.
This reform will have effect from 6 April 2020. Employers will not have to do anything extra to claim the additional allowance, which is expected to cost the Exchequer around £455m annually.
Businesses and civil society organisations who already claim the allowance through their payroll software will automatically receive the increased allowance, provided they remain eligible.
Treasury analysis suggests approximately a further 65,000 businesses and civil society organisations are expected to be taken out of employer NIC liability altogether as a result of the increase.
