The Employment Allowance is a reduction in the National Insurance costs for employers to encourage businesses to take on staff. The allowance covers up to £3,000 of Employer’s National Insurance contributions, the amount that a business pays in addition to its employees’ salaries. 

There are already a number of employers that are excluded from the Employment Allowance. The currently excluded employers are as follows:

• Limited companies with a single director and no other employees. Having a second employee, even another director, will make such a company eligible again. 

• People employed for domestic work, such as nannies or au pairs. Care and support workers still qualify.

• Public bodies or businesses undertaking more than half their work in the public sector.

• Service companies working under the “IR35” rules. These rules apply to subcontractors working through companies whose working arrangements are similar to those of employees of their end customers.

From April 2020 large businesses will also be excluded from receiving the Employment Allowance. Businesses are classified as large for this purpose if their Employer’s National Insurance bill for the preceding tax year exceeded £100,000. Where a business is a limited company with other connected companies, this test is applied to their collective liabilities. If a group of companies passes this test, then only one company within the group will actually be eligible to benefit from the allowance.

This change has two consequences. Firstly, businesses will need to apply for the Employment Allowance, though it is likely that this application will be made through payroll software. Secondly, it means that Employment Allowance will also become subject to the EU rules for state aid. These rules limit grants and tax breaks that member states can give to companies in order to avoid any one country distorting competition across the single market. Most state aid is covered by the de minimis rules, which allow state aid up to an agreed limit. This is currently 200,000 Euros over a three-year period for most businesses.

Whilst this is unlikely to affect smaller businesses, larger organisations that are already in receipt of other state aid will need to check their figures carefully. The details still need to be finalised between now and April 2020, but it is likely that businesses will need to make the following declarations  before they can receive the Employment Allowance. 

• Which trade sector they operate in. There are a handful of business sectors where different state aid rules apply.

• How much state aid they have received in the last two years. 

• That they do not expect to exceed the state aid limit in the current tax year. 

If a Brexit deal is reached between now and April 2020 then it is possible that this latter point will be dealt with. However, in the event of a no -deal Brexit the government have already announced that UK competition rules will largely mirror EU state aid rules. 

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