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Restricting the Employment Allowance – legislation from 6 April 2017

The government introduced the Employment Allowance in April 2014 via the National Insurance Contributions Act 2014, all in the name of supporting the cost of employing people. In 2016-17 (and 2017-18) businesses and charities can reduce their Secondary National Insurance liability by a maximum of £3,000

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The government introduced the Employment Allowance in April 2014 via the National Insurance Contributions Act 2014, all in the name of supporting the cost of employing people. In 2016-17 (and 2017-18) businesses and charities can reduce their Secondary National Insurance liability by a maximum of £3,000.

 

Section 2 of the 2014 Act outlines exceptions to the Allowance, i.e. employers that are not eligible to claim it. These exceptions are subject to a number of exceptions themselves but, broadly, they are:

• Employers where the sole employee is the director;
• Employers who employ someone for personal, household or domestic work, e.g. employers of nannies;
• Public bodies or bodies doing more than half of their work in the public sector;
• Employers where the only income is the earnings of an intermediary, i.e. service companies.

 

Budget 2016 announced that from April 2018, the Employment Allowance would be removed for one year from those who receive civil penalties for employing illegal workers. This means the introduction of a new exclusion: “Persons employing adults subject to immigration control”. This will only impact employers who have received a civil penalty from the Home Office for employing workers subject to immigration control and have exhausted their Home Office appeal rights in relation to that civil penalty. It is estimated that up to 2,000 employers may be affected by this.

 

The Employment Allowance (Disqualified Persons) Regulations 2017 and are open for consultation until 3 January 2017. Although they will come into effect on 6 April 2017, the effect of the 2017 Regulations will be to prevent a disqualified employer from claiming the allowance for one year following the year in which they exhausted their appeals rights against the Home Office penalty (or chose not to appeal). So, an employer who exhausts their appeal rights in, say, January 2018, will not be eligible to claim the allowance for the one tax year commencing April 2018 (i.e. 2018-19 tax year).

 

This new exclusion/disqualification is important, as employers that are impacted will need to amend their payroll software via the Employer Payment Summary (EPS) to ensure that they do not claim the Employment Allowance during the year in which they do not qualify.

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