Employment Allowance & De Minimis State Aid

Following Employment Allowance reforms, from 2020/2021, Employment Allowance will be limited to businesses and charities with an Employer National Insurance Contributions bill below
£100,000 in the previous tax year.

There are some restrictions, regardless of the size of the company. You cannot claim Employment Allowance if:

  • You are the director and the only employee paid above the Secondary Threshold (ST)
  • You employ someone for personal, household or domestic work, unless they are a care or support worker
  • You are a public body or business doing more than half your work in the public sector, unless you are a charity
  • You are a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, a limited company or partnership)

From tax year 2020/2021, if a company is already claiming Employment Allowance (selected in Employer tab | Claim Employer NI Allowance), during the move into the new year process, you will now be required to confirm if you are continuing to claim Employment Allowance.

De minimis state aid (Employer Tab)

On the Employer tab, a new State Aid button has been added. This button will be disabled if the Claim Employer NI Allowance is unticked. Click this button to open the new State Aid screen.
Here you can select the de minimis state aid option applicable.

De minimis state aid options are:

  • De minimis state aid does not apply
  • Agriculture
  • Fisheries and Aquaculture
  • Road Transport
  • Industrial (or other)
HMRC have issued the following guidance, particularly in relation to “de minimis state aid business sectors”.

You’ll continue to claim EA through your Employer Payment Summary (EPS), but claims will not renew, and you’ll need to make a new claim for EA each year.

For 2020-2021 tax years onwards, you can only claim EA if your total (secondary) Class 1 National Insurance contributions (NICs) liability is below £100,000 in the tax year before the year of claim.

Remember – when claiming Employment Allowance from April 2020, you must provide your business sector on your EPS if your business is undertaking ‘economic activity’ – this will apply to most businesses.

Business sectors are:

  1. Agriculture
  2. Aquaculture & Fisheries
  3. Road Freight Transport
  4. Industrial

Industrial – This sector should be selected if the business is undertaking economic activity and is not within 1-3 above. An example of the type of businesses choosing this option could be a Hair Salon or Restaurant, which would come under this sector as they offer goods and services.

This is required as Employment Allowance will be operated as a de minimis State aid. Therefore, de minimis State aid rules will apply if your business is engaged in economic activity, this means providing goods or services to the market. You do not have to make a profit, if others in the market offer the same goods or services, it is an economic activity.

Only choose ‘State aid rules do not apply’ on your EPS when your business does not undertake any economic activity. There are some employers, for instance, charities, community amateur sports clubs, employing someone to provide personal care, who may not be engaging in economic activity and therefore outside de minimis State aid rules.

An example of this could be a small educational charity, employing staff to teach English as a second language for free in the local community. These employers are still eligible for the allowance,
but it will not be classed as a de minimis State aid in these circumstances

If you’ve already submitted your EA claim, you can send another EPS to correct information after ammending details in your payroll software in relation to business sectors.

You can find more information on GOV.UK, where the Employment Allowance guidance has been updated to reflect these changes and what you need to know.

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