Employment allowance proposals
01 November 2019
This article was featured in the November 2019 issue of the magazine.
Samantha Mann MAAT MCIPPdip, CIPP senior policy and research officer, reveals how the CIPP has effected government policy change
The Budget announcement that from April 2020 employers with class 1 secondary National Insurance contributions (NICs) in excess of £100,000 in the preceding tax year would no longer receive the £3,000 annual amount for the employment allowance was met with little response. A shrug of the shoulders at most, with many commenting “don’t know why it took so long”.
The policy intention of the employment allowance has always been to encourage growth in business and thus increase employee numbers – and so the ultimate beneficiaries have always been seen to be micro and small businesses.
The impact (also known as ‘unintended consequence’) of making this change means that, by restricting the amount to one group of ‘economic entities’ to the exclusion of others no matter how large they may be, HM Revenue & Customs (HMRC) has to account for these annual amounts as de minimis state aid.
There are various types of state aid, ‘de minimis’ being the category that requires the least reporting to the European Union by the UK. However, for the public sector body that provides such funding it still requires records to be maintained by that public sector body for ten years – in this case, that public sector body is HMRC.
...draft regulations, published for public review, were met not with indifference but with howls of indignation
The draft Employment Allowance (Excluded Persons) Regulations 2019 were published for technical consultation during the summer months – a summer which proved for many not to be ‘balmy’ but ‘barmy’. The proposed policy seemed to be asking UK employers to account for an item in euros through their payroll system – surely, this proposal topped the charts for being the barmiest.
But on a more serious note, their publication meant that the draft regulations, published for public review, were met not with indifference but with howls of indignation.
The key features of the draft regulations called on employers to:
Indicate in each tax year if the employment allowance is to be claimed.
Account for a three-year financial period to consider whether there is sufficient space to accommodate a claim of £3,000 in the coming tax year (regardless of the intention to claim the whole £3,000 or not).
Indicate which sector the employer is in which could include agriculture, fisheries and aquaculture, road transport and industry.
Account for de minimis state aid received in the three-year period in euros.
As this was the first time that we had been asked to consider this subject, we took many of the same steps that we would with a public consultation held at an earlier stage of policy development.
Think tank roundtable
Our think tank roundtable meetings are proving to be a very useful tool to gather views and experiences from the membership. They provide us with an opportunity to drill down to the finer valuable detail that is often needed in order to gather an informed view as to the impact that new or amended policies will have.
The roundtables also provide valuable opportunity for government officials to meet with employers and professionals to gain a real insight into the workings of busy payroll operations. As we know well, no one size fits all.
The CIPP thanks Karen Thomson, partner at Armstrong Watson, for providing us all with a warm Borders’ welcome that played a valuable role in gathering more insight into this latest proposal.
...guidance should equally not be simple – it should comprehensively provide for all needs and be provided in all formats
Our consultation response
It is fair to say that the CIPP is disappointed that other options weren’t previously considered in a public consultation, and we are concerned at the proposed direction of travel as it relates to government’s use of the real time information (RTI) system. It is also fair to say that the proposals on accounting for the de minimis state aid amounts were met with wide-spread objections.
Thank you to all members who were generous enough to share their time to feed into our response.
In our written response (which can be read in full here: cipp.org.uk/my-cipp/policy-hub) to the technical consultation we made several recommendations, and reiterated that we are of the belief that the draft Employment Allowance (Excluded Persons) Regulations should not be passed in their current form. This is because they place on employers’ payroll processes unacceptable levels of administrative burden – not least because the data required within the declaration is not available to the payroll function and so will require significant manual intervention.
We recommended that:
As with any new policy or policy adaptation it is vital that a good communications plan which makes use of all communication avenues open to HMRC is used, and to an appropriate timescale. Such resources include direct communications to inform all employers about the policy change (i.e. hard-copy letters planned for later in the tax year – February/March). Whilst electronic communications are not ideal, if also used they will ensure that all who are involved in submitting the employer payment summary (EPS) will have been made aware; this is a high-level communication, but it is important to ensure it arrives at the correct place.
Guidance should be updated on GOV.UK pages at a basic level as well as a more-advanced level, that considers more complex or unusual circumstances and the needs of agent and service providers. Please continue in this vein with a clear explanation of:
De minimis state aid – the sectors affected as well as the principle, which must include good examples of what employers need to be aware of i.e. how they might receive such aid.
The impact of the ‘less than £100,000’ on class 1 secondary NICs liabilities – how is this calculated and what exclusions are there from this amount? We understand that secondary NICs arising from ‘deemed’ payments are to be excluded – is this for all employers or simply personal service companies/intermediary employers that directly employ the contractor? This needs to be made clear.
Can the £3,000 be offset against all class 1 secondary NICs or are there any exclusions? Again, this needs to be made very clear, not only to software developers but also to employers, agents and payroll providers.
Use of webinars (detailed and technical ‘talking points’ for agents) and employer webcasts.
Use of stakeholder engagement to cascade the message across all sectors (particularly those that have limited state aid ceilings) and professions.
A brief summary in the Employer Bulletin and Agent Update – which ideally will have working links to updated and accurate pages on GOV.UK – is not enough.
Frequently-asked-questions sheets have been found to be useful in the past and we would be happy to supply suitable questions – we have many.
We are aware of the limitations that Government Digital Services (GDS) place on the format of information held on GOV.UK and we would be happy, together with other stakeholders, to cascade such information.
We continue to be frustrated at the limitations that GDS place on information uploaded to GOV.UK. Our work is not simple, and neither will it become so with this latest policy change. So, the guidance should equally not be simple – it should comprehensively provide for all needs and be provided in all formats.
We welcome the opportunity to continue to work with HMRC on communicating this change and feeding into the increased guidance that is in the design process.
|Employment allowance EPS data items from 2020/2021|
|166||Employment allowance indicator||rule changed|
|199||Employer is in the agriculture sector||added|
|200||Employer is in the fisheries and aquaculture sector||added|
|201||Employer is in the road transport sector||added|
Employer is in the industrial sector
(Complete this item if the employer is involved in economic activity, and is not within the agriculture, fisheries and aquaculture or road transport sectors)
|203||State rules do not apply to employer (Complete this item if the employer is not undertaking any economic activity (e.g. charities, community amateur sports clubs, employing someone to provide personal care)||added|
...decision to remove the requirement to report state aid amounts is very welcome
The latest position
In early October, a week or so after finalising the content of this article, we received notification of a significant development regarding the data items being added to report the employment allowance in EPS returns from the start of the 2020/21. These new data items are shown in the table.
HMRC’s Software Developers Support Team emailed developers with this message:
“We’ve had lots of feedback over the past few weeks, about employment allowance reforms from 06 April 2020, and its link to de minimis state aid. Many of the comments were in relation to data items 204/205, in the recently published RTI RIM artefacts and Data Items Guide for 2020 to 2021.
In response to feedback, HMRC can now confirm that we do not require employers to calculate and report the amount of de minimis state aid in this data item.
Employers still need to complete business sectors:
data items 199 to 202 (all that apply) for businesses undertaking economic activity, this means providing goods or services to the market. Businesses do not have to make a profit: if others in the market offer the same goods or services, it is an economic activity. In the case of this allowance, this will apply to most businesses, or
data item 203 where de minimis state aid rules do not apply to the employer because they are not engaging in economic activity: for example, charities, community amateur sports clubs, employing someone to provide personal care.
The RTI schema for 2020/21 will not be amended; however, the amount of de minimis state aid received or anticipated (in euros) is no longer required – if one or more of the de minimis state aid business sectors has been selected (data items 199 to 202), complete item 204 with 0.00. If possible, software products should report 0.00 by default in these cases.
Any figure that is supplied in this field will be disregarded by HMRC back-end systems and will not be stored or displayed, for example in Business Tax account.
RTI schema for 2021/22 will be amended to remove data items 204 and 205 completely.”
The decision to remove the requirement to report state aid amounts is very welcome. And it demonstrates that we can bring change.