Are you aware of the recent announcements about changes that are planned in relation to the National Insurance relief scheme?
Draft legislation has been released and there’s currently a consultation underway about the plans to limit access to the Employment Allowance from 2020. While the majority of smaller companies will still be able to access it, larger and medium sized companies will have their eligibility removed. It’s estimated these changes are likely to affect around 1.2 million employers who’ll end up having to pay more towards employee NICs.
What is the current situation with the Employment Allowance?
At the moment the Employment Allowance is available to all employers and charities irrespective of company size.
There are some exceptions. They include service companies working under IR35 rules where the only income is the earnings of the intermediary (such as the personal service company, limited company or partnership). It doesn’t apply if you’re the director and the only employee paid above the secondary threshold.
Nor does it apply if someone’s employed for personal, household or domestic work unless they’re a care or support worker. And, unless it’s a charity, it’s not applicable to public bodies or businesses doing more than half their work in the public sector.
The allowance is currently set at a flat rate annual amount of £3,000 relief and can be offset against Class 1 secondary NICs for each payroll. Once the claim has been made, there’s no need to renew it each tax year.
National Insurance contributions - Why is it changing?
The allowance was initially implemented by the National Insurance Contributions Act 2014 and was primarily intended to support smaller businesses who wanted to take on staff. So it’s perhaps not all that surprising that Chancellor Philip Hammond revisited it in his Autumn budget speech last year with a view to refocusing it just on smaller companies. Given the fact it’s a flat rate irrespective of employer size, his view was that it was far less likely to be an effective incentive for larger employers.
So from 6 April next year it will only be accessible to individual small to medium companies with a bill that’s under £100,000 for secondary Class 1 NICs for the preceding tax year. The £100,000 limit also applies in instances where there are connected employers, with the cumulative secondary Class 1 NICs liabilities being taken into account for all those businesses. Any company receiving the Employment Allowance going forward will need to claim it every year. It is expected that businesses who are claiming the allowance at the moment will be written to so they are aware of these changes.
National Insurance contributions - Do you need to do anything?
It would be sensible for companies to plan ahead by checking their existing NICs status so they are aware if these anticipated changes will affect them and, if necessary, make any appropriate arrangements for managing employment costs going forward.
The Government is seeking views on the draft regulations and associated documents relating to the planned reform of the Employment Allowance eligibility rules. It is running until the 20 August 2019 so you will be able to comment on the draft documentation up until that point. Keep an eye out for developments after then so you are aware of implications for your company. You will find the Government’s consultation here.
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