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Employment allowance changes

HMRC have announced that from April 2020, they will be introducing new rules and processes for claiming employment allowance.

From the 2020/2021 tax year, HMRC will make employment allowance available to businesses and charities whose employer national insurance contributions (NICs) bill was below £100,000 in the previous tax year. Any companies that exceed this are no longer eligible to claim employment allowance, and so from April 2020 larger employers need to ensure that the ‘Eligible for Employment Allowance’ checkbox within the company settings isn’t selected within any payroll software.

The reasoning behind their decision is that employment allowance is now considered a type of State Aid, and is essentially placing some businesses in an advantageous position over others which could potentially distort competition and trade within the European Union (EU).

The change effectively withdraws the employment allowance for medium to large sized companies, with approximately 100,000 employers affected by the change. However over 99% of micro-businesses and 93% of small businesses will still be eligible for the allowance.

Regardless of the size of your company, you can’t claim employment allowance if:

• You’re the director and the only employee that’s paid above the secondary threshold.

• You employ someone for personal, household or domestic work, unless they’re a care or support worker.

• You’re a public body or business doing more than half of your work in the public sector, unless you’re a charity.

• You’re a service company working under IR35 rules and your only income is the earnings of the intermediary.

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