Will you be better off by deferring your Employment Allowance claim until later in the year?

How to deal with the Employment Allowance when claiming for furlough

Since the Coronavirus Job Retention Scheme launched on Monday, we have received a number of questions about how to deal with the Employment Allowance when submitting a claim.

This seems to be one of the more confusing elements of the application process, so we have put this FAQ summary together to try and make things clearer.

What is the Employment Allowance?

The Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000. The allowance was £3,000 in the prior tax year but was increased in the Budget and is now classed as state aid. Please read full criteria here to establish whether you are still eligible: https://www.gov.uk/guidance/changes-to-employment-allowance

Essentially you’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £4,000 has gone or the tax year ends (whichever is sooner) but you can claim at any time in the tax year.

Do I need to claim Employment Allowance or is it automatic?

Prior year claims for Employment Allowance will not renew and you’ll need to make a new claim for Employment Allowance each year, however we encourage you to consider this in the context of tax planning and the interaction with the job retention scheme if applicable, as covered below.

Should I be claiming the Employment Allowance now or should I claim later in the year?

A subject of much debate, but the current guidance, as supported by our Institute is as follows: By opting to start the Employment Allowance claim later in the year, those businesses with furloughed employees would be protecting the availability of the full Employment Allowance for the future, rather than ‘wasting’ it by being required to reduce their JRS claim.

Whether this is beneficial will depend on your exact situation so please discuss with your Forrester Boyd contact for further information, some businesses may save up to £4,000 by planning accordingly.

What if I have no Employer National Insurance contributions in the period?

If you do not expect to pay any National Insurance contributions during a pay period either because there is simply nothing due or as a result of applying the Employment Allowance, you should not claim any employer National Insurance contributions costs for furloughed employees in that pay period.

If I have claimed Employment Allowance should I deduct it when calculating National Insurance contributions?

Yes. If you are claiming the Employment Allowance, you should subtract any Employment Allowance used in that period.

If you have any further questions, please contact us directly at info@forrester-boyd.co.uk