HMRC has confirmed that employment allowance deductions may only be made in periods after the claimant has given notice and offers further clarity on the implications for those who have claimed government COVID-19 support.
For employers that received grants under the coronavirus job retention scheme (CJRS) in the period from 1 March 2020 to 31 July 2020 when the grant covered secondary (employer) national insurance contributions (NIC) and claimed employment allowance (EA) there is a risk of double claiming relief on secondary (employer) NIC.
Following consultation with HMRC, ICAEW’s Tax Faculty outlines the clarifications offered on the interaction between EA and the NIC element of CJRS, particularly where employers may need to make repayments.
This article refers to a claim being made for the EA as this is the common parlance, but in reality it is shorthand for notifying HMRC under s4(3) NIC Act 2014 that an employer qualifies for the EA and that from the time of the notification will deduct the amount of the EA from qualifying payments of secondary (employer) NIC as they occur in the tax year. In brief, EA takes priority over any other deduction and is given for tax months after a claim is made.
Employers who claimed the secondary NIC element of CJRS for April to July 2020 and deferred their EA claim for 2020/21 until after the month of their final CJRS claim will be treated as receiving their EA relief from the month after their EA claim. For example, if EA was claimed in July 2020 after the payroll run, EA would apply for August 2020 onwards. (Note: EA is claimed via the employer payment summary and the deadline for which is the 19th of the month after month end. This means a claim for July could be made by 19 August, but it would relate to July not August.)
In HMRC’s view, these employers will not have double claimed EA and the NIC element of CJRS in April to July 2020 provided they had sufficient secondary NIC liabilities to absorb the full £4,000 EA from the point of claim until the end of the 2020/21 tax year.
Employers who did not have sufficient secondary NIC liabilities to absorb £4,000 EA from August 2020 to the end of 2020/21 will automatically obtain EA for the unrelieved balance up to £4,000 against secondary NIC liabilities for April to July 2020.
As EA takes priority over other deductions, the CJRS NIC grant must not exceed the total amount of secondary NIC actually paid by the employer for the period of the claim.
Employers whose payroll software backdated EA to the start of the tax year or did not reduce EA to take account of the NIC element of CJRS grants for April to June 2020, will need to repay an equivalent amount of the secondary NIC element of the CJRS grant to ensure that they have not been reimbursed for secondary NIC repaid due to the EA being backdated. Secondary NIC paid in April to July 2020 which was not included in a CJRS NIC claim remains eligible for EA.
If an EA claim was made at the beginning of the tax year, the employer would not pay any secondary NIC due until the full amount of EA had been used. As the employer was not having to pay secondary NIC to HMRC, they could not claim the secondary NIC element of the CJRS grant. Once the full £4,000 EA had been used and the employer started to pay secondary NIC, the employer could benefit from the secondary NIC element of CJRS.
Depending on the size of the employer, it is possible that, prior to the end of July 2020, the employer used the full EA within the first month or two and correctly also claimed the secondary NIC element of the CJRS grant.
If an employer claimed CJRS support against secondary NIC that they did not have to pay to HMRC (owing to the EA claim), they will have double claimed and will need to repay the secondary NIC element of the CJRS grant.
The legislative authority for EA taking priority over any other deduction is outlined in s4(3), NIC Act 2014 which states: “If under HMRC’s arrangements a person is permitted to make a deduction from a qualifying payment, the person must make the deduction and must make it before any other deductions which the person is permitted to make from the payment under any other legislation.“
HMRC’s view that EA is given for the tax months after an employer makes its claim is detailed in paragraph 10 of HMRC’s Arrangements for EA made under s4, NICA 2014.
Meanwhile, para 8.4 of the first CJRS Direction confirms that the secondary NIC element of CJRS claims should not exceed the total amount of secondary NIC actually paid by the employer for the period of the claim.
This clarification supersedes previous Tax Faculty support published on 30 June 2020 and 15 October 2020 on the interaction of EA and the NIC element of CJRS. The faculty highlights that, contrary to previous information, there is no longer a reference in HMRC’s guidance to being able to ask HMRC to reduce EA claims by contacting the Employer Helpline.
ICAEW Know-How from the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.