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EA and CJRS interaction remains unclear

27 August 2020: Further clarity is being sought from HMRC for cases where the secondary NIC an employer can offset using employment allowance (EA) includes amounts for which CJRS grants have been claimed.

ICAEW’s Tax Faculty has been attempting to clarify the interaction between EA and the Coronavirus Job Retention Scheme (CJRS). On 17 August 2020, the faculty published an insight item that sought to confirm that:

  • If an employer’s secondary NIC liability for 2020/21 is less than £4,000, meaning it can all be covered by EA, then the employer should not claim for any employer’s NIC under CJRS.
  • Employers who still have at least £4,000 of secondary NIC available to be relieved by EA in 2020/21 after claiming under the CJRS, can claim relief under both schemes provided that the 2020/21 EA claim is not made earlier than July 2020 and therefore applies to August 2020 onwards only, thereby ensuring that EA is not claimed on NIC covered by CJRS grants.

This leaves cases where an employer’s total secondary NIC liability for the tax months August 2020 onwards is less than the £4,000 EA and the employer has made both a CJRS claim for secondary NIC and an EA claim, even if the EA claim was made not earlier than July 2020 so it started from 6 August 2020. In such cases, how does the employer adjust their EA and CJRS claims to ensure that they receive the maximum EA offset and CJRS grant, but do not receive both a CJRS grant and EA in respect of the same NIC?

If an employer has claimed CJRS grants on secondary NIC in the earlier tax months of 2020/21, then even if the employer didn’t make their EA claim until after July 2020, so believing there is no overlapping claim, surplus EA up to the £4,000 limit which is not used in the later part of 2020/21 gets automatically carried back to the beginning of 2020/21 and offset against secondary NIC, and that has been covered by CJRS grants.

Employers will not know exactly how much their total 2020/21 secondary NIC liability is until they have run their March 2021 payroll. By this time, the 90-day time limit for amending CJRS claims will have expired.

The news item on 17 August was written on the understanding that software developers were modifying payroll software. The Tax Faculty is not clear whether this overrides HMRC allocating EA to earlier months of tax year 2020/21 and will provide an update once HMRC has provided an answer.

Further support from ICAEW:

Read more about the CJRS in the remuneration strategies section of Rayney’s Tax Planning for Family and Owner-Managed Companies

A table containing the CJRS numbers with accompanying notes are contained in the payroll section of Bloomsbury’s Tax Rates and Tables