14th August 2020
CJRS and the Employment Allowance
Changes to the Employment Allowance (EA) were introduced from 6 April this year, with the amount of the allowance rising to £4,000 but eligibility restricted to businesses or charities whose employer secondary Class 1 National Insurance contributions (NIC) were less than £100,000 in the previous tax year, and who don’t exceed the limits for de minimis state aid. From the time the initial CJRS guidance was published back in March, the interaction between the CJRS and the EA has been a source of debate with many employers hoping to postpone claiming the EA whilst their employees were furloughed and wages and the associated employer NI and pension contributions being claimed back through the CJRS.
There is no confusion for those employers whose secondary NI contributions would be less than the £4,000 of the EA. There would not be any employer NICs due so they would not be able to claim for any employer’s NIC under the CJRS.
Where confusion has arisen though is what happens when the EA does not cover all of the employer’s secondary Class 1 NIC liability for the year. Are employers allowed to pay secondary Class 1 NIC for the first few months of the tax year starting in April 2020 in the usual way, and reclaim it back under the CJRS instead of using the EA, saving the EA for later in the year after the CJRS grant has wound down?
Whilst HMRC guidance on the EA seemed to allow this, stating that employers can claim for the EA at any point during that tax year or up to four years afterward, the CJRS guidance was less than clear and at one point it seemed as though delaying a claim for EA would be frowned upon by HMRC. However, clarification has now been received. An employer is allowed to wait and claim the EA later in the year, provided that for the time after the date when the EA claim is made there is at least £4,000 of secondary Class 1 NIC payable. Payrollers should check with their payroll software to ensure that claims for the EA have not already been made from the beginning of the tax year. It is very important to make sure the EA is not set against the employer’s NIC that has been claimed under the CJRS.