Employment Allowance increases for National Insurance from April 2020
Published 11 March 2020
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Who is likely to be affected
All businesses, charities and community amateur sports clubs eligible for the Employment Allowance, whose Secondary Class 1 National Insurance Contributions liability is over £3,000 a year.
General description of the measure
This measure increases the maximum Employment Allowance by £1,000 to £4,000 from April 2020. This means eligible businesses and charities will be able to claim a greater reduction on their Secondary Class 1 National Insurance Contributions liability.
Policy objective
This measure supports businesses by providing relief of up to £4,000 on their employer secondary Class 1 National Insurance Contributions liabilities. This is expected to reduce around a further 65,000 businesses’ National Insurance Contributions bill to £0, and further allow small, growing enterprises to take on staff without incurring additional National Insurance Contributions liabilities.
This is in addition to the 590,000 businesses whose National Insurance Contributions bill is effectively reduced to nil under the current level of the Employment Allowance.
Background to the measure
This was announced in spring Budget 2020 for implementation from April 2020.
Detailed proposal
Operative date
This reform will have effect from 6 April 2020.
Current law
The Employment Allowance was introduced in 2014 in the National Insurance Contributions Act 2014 and when it was first introduced was a relief of up to £2,000.
In April 2015, it was reformed to exclude employers of personal or domestic staff (except care or support workers) and from April 2016, the value of the relief was increased to £3,000 and single director companies were excluded.
It is being reformed from April 2020 to restrict access to employers whose National Insurance Contributions liability in the previous tax year was under £100,000.
Proposed revisions
This measure reforms section 1(2)(a) National Insurance Contributions Act 2014 to increase the annual maximum amount of National Insurance Contributions Employment Allowance from £3,000 to £4,000.
Employers will not have to do anything extra to claim the additional Allowance.
Summary of impacts
Exchequer impact
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| - | -445 | -455 | -465 | -470 | -475 |
These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to impact on individuals as it affects businesses, charities and community amateur sports clubs eligible for the Employment Allowance, whose Class 1 (Secondary) National Insurance Contributions liability is over £3,000 a year. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact around 510,000 businesses eligible for the Employment Allowance and with Class 1 (Secondary) National Insurance Contributions liability over £3,000 a year by providing relief of up to £4,000 on their employer secondary Class 1 National Insurance Contributions liabilities.
Businesses and civil society organisations who already claim the allowance through their payroll software will automatically receive the increased allowance, provided they remain eligible. Approximately a further 65,000 businesses and civil society organisations are expected to be taken out of employer National Insurance Contributions liability altogether.
The impact on businesses’ and civil society organisations’ administrative burdens is expected to be negligible.
There are likely to be negligible one-off costs as business and civil society organisations familiarise themselves with the new rules. There are not expected to be any ongoing costs.
Customer experience is expected to stay broadly the same because the process for claiming and accessing the Employment Allowance is not changing. Customers will be able to automatically access the additional allowance on application.
Operational impact (£m) (HMRC or other)
Operational impact on HMRC is expected to be very small. Given that the allowance will be claimed through HMRC’s Real Time Information (RTI) system and standard payroll software, the operational impact outside HMRC is expected to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from receipts.
Further advice
If you have any questions about this change, contact Victoria Bedford on 03000562088 or email victoria.bedford@hmrc.gov.uk.