Employment Allowance: Who can’t claim the Employment Allowance? Transfers of business
National Insurance Contributions Act 2014 - section 2, subsections (5) to (9)
If a “business*” (or part of a business) is transferred to a person (P) in a tax year and in that same tax year (P) then incurs liabilities to pay secondary Class 1 NICs for any employed earners who are (wholly or partly) connected with the transfer of the business (or part of the business), then those secondary Class 1 NICs liabilities will be “excluded liabilities” for the purpose of claiming the Employment Allowance.
For this purpose, a transfer of business occurs when a business (or part of a business), is transferred to (P) in a tax year if, in the tax year:
- another person (Q) is carrying on the business, or part of the business, and
- in consequence of “arrangements*” involving (P) and (Q), (P) begins to carry on the business, (or part of the business), on or following (Q) ceasing to do so.
For this purpose, “business*” includes:
- anything which is a trade, profession or vocation for the purpose of the income tax and Corporation tax Acts
- a property business (as defined in section 263(6) of the Income Tax (Trading and Other Income) Act 2005
- any charitable or not for profit undertaking or any similar undertaking
- functions of a public nature
For this purpose, “arrangements*” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
Company A, an electrical retailer, has 5 employees whose wages incur secondary Class 1 NICs liabilities. Company A claims the Employment Allowance at the beginning of the 2016 to 2017 tax year and 2 months into that tax year the sole director/shareholder of Company A decides to retire and sell the business.
Company B, an electrical installation contractor employing 2 staff, purchases the business from Company A, now adding electrical retail to Company B’s trading activities. The transfer of ownership of Company A’s business to Company B takes place on 6 June 2016, when all 5 employees of Company A are transferred over to now be employed by Company B, increasing Company B’s workforce to 7 employees.
From 6 April 2016 to 6 June 2016, Company A incurred secondary class 1 NICs liabilities totalling £1,000. Company A used up £1,000 of its Employment Allowance claim against those secondary class 1 NICs liabilities during that period, leaving an unused balance of the Employment Allowance totalling £2,000.
As an unused amount of the Employment Allowance cannot be transferred from one company to another, Company B cannot now utilise Company A’s unused balance of the Employment Allowance totalling £2,000.
Also, Company B cannot now apply its own existing Employment Allowance claim against the secondary class 1 NICs liabilities arising on the earnings paid to its 5 new employees (transferred from Company A) during the period from the date of transfer (6 June 2016) up until the end of the tax year.
|However, from the beginning of the 2017 to 2018 tax year onwards, Company B can claim the Employment Allowance against the secondary class 1 NICs liabilities arising on all of its 7 employees, (including the 5 employees transferred from Company A), up until the annual maximum amount of the Employment Allowance for that tax year has been fully utilised.|