Small and medium-sized enterprises (SMEs) may be at risk of losing the Employment Allowance should planned legislative changes go ahead.
The Employment Allowance reduces employers’ Class 1 National Insurance bill by up to £3,000 each tax year.
But under proposed new legislation, the Employment Allowance will be reclassified as a ‘de minimis state aid’ in an attempt to stop larger employers – defined as those whose total Class 1 liability in the previous tax year exceeded £100,000 – from receiving the benefit.
However, as there is a maximum amount of de minimis state aid a business can receive in any three-year period, there will be ramifications for even the smallest of employers.
Highlighting the risk, accountancy regulator the Association of Tax Technicians (ATT) said the reclassification of the Employment Allowance is likely to have “consequences” for all businesses, regardless of their size.
“Importantly, if an employer is already in receipt of other forms of state aid, whether by way of a grant or tax break, this may affect their ability to claim the Employment Allowance in the future,” said Jon Stride, Co-chair of the ATT’s Technical Steering Group.
“Small employers may find it unfair if, because they may be in receipt of grants or tax breaks because they are doing well or contributing something vital to the UK economy, they will no longer be able to receive the existing reduction in their national insurance bill.”
Mr Stride added: “Employers need to ensure that they have capacity for the full £3,000 Employment Allowance within their de minimis state aid ceiling, regardless of how much of the allowance they actually claim.”
The ATT also warned that despite the UK leaving the EU in October, thus gaining the regulatory powers to redact the classification, HMRC has already stated that it will be retained after Brexit.
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