Plans to remove the employment allowance from large employers could have an impact on small businesses too, according to research by the The Association of Taxation Technicians (ATT).
From April 2020, the next tax year, the employment allowance, which currently gives employers a reduction in their National Insurance (NI) bill of £3,000 per annum, will no longer be available to large businesses. The change in tax legislation means that this valuable tax relief will be re-classified as ‘de minimus state aid’, which means there is a onus on small business owners who employ staff to understand what ‘state aid’ they are entitled to.
As a small business owner, how will I be affected?
For small businesses, there is a maximum amount of state aid you can claim over a three year period. This state aid rule is also written into EU legislation and the government has confirmed that this piece of legislation will remain after the UK leaves the EU.
Small businesses that currently receive grant or tax breaks from the government because their small business is contributing to the economy and thriving, may no longer be eligible for the employment allowance when the new legislation comes into force. All businesses that don’t currently receive grants or tax breaks will also be directly affected from April 2020.
There will be a requirement from April 2020 to claim for employment allowance each year, and the automatic carry forward year on year will no longer happen. This means that small businesses need to ensure they must actively apply to the tax authorities at the start of each tax year for this valuable tax relief, otherwise a charge for employer NI will apply immediately. The application process will consider what ‘de minimus state aid’ has been received in the last three years, which could be an onerous and labour intensive process for small businesses to comply with.
The ATT have strongly advised that businesses ensure they have the full £3,000 employment allowance available in their de minimus state aid, regardlesss of how much employment allowance they apply for.
Ultimately, imposing such restrictions and additional reporting on small businesses could result in lots of small businesses missing out on this valuable tax relief as they may decide it is more cost effective not to make a claim.
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