Introduced in April 2014, the employment allowance entitles the majority of businesses, charities, and community amateur sports clubs to a reduction of up to £3,000 per year on their employer National Insurance contributions (NICs) bill.

The consultation proposes amending the regulations so that employers are excluded from the allowance in cases where they employed individuals subject to immigration control (illegal workers), have been subject to a civil penalty by the Home Office and all appeal rights against that penalty have been exhausted.

HMRC says early estimates suggest that around 2,000 employers will be affected. Employers who fall into the prescribed category will not be eligible to claim the employment allowance for the tax year following the year in which they exhausted their appeals rights against the Home Office penalty or chose not to appeal.

They will need to amend their payroll software to ensure they do not claim the employment allowance during the year in which they do not qualify. As an example, an employer who is penalised by the Home Office in September 2017 for employing individuals subject to immigration control, and exhausts their appeals right by January 2018, will not be eligible to claim the employment allowance from April 2018.

HMRC’s consultation asks for feedback on the draft legislation and, in particular, on the strengths and weaknesses of this approach, which has been designed to avoid employers needing to pay back any employment allowance already claimed in the current year.

The closing date for comments is 3 January 2017.

Employment Allowance: technical consultation on excluding employers of ‘illegal workers’ is here.