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Coronavirus Job Retention Scheme and Employment Allowance Claims - Potential Risk of Liability

Article Date: 20 September 2021

The following will be of interest to all employers who are entitled to claim the Employment Allowance (EA).  The general entitlement condition for this for the tax year 2020-2021 was that your Class 1 National Insurance (NI) liabilities in the tax year 2019-2020 were less than £100,000 (very roughly, this will be the case if you have less than fifty employees).

The EA reduces an eligible employers NI liability by up to £4,000 each tax year, and is usually claimed by way of an entry in the Employer Payment Summary (EPS) submission to HMRC when running the first payroll in the tax year.

So most eligible employers claimed their EA for the 2020-2021 tax year when they ran their payroll for April 2020.

However, a problem has come to light in relation to how claims for EA interact with your Coronavirus Job Retention Scheme (CJRS) claims.

You will remember that when it was first introduced, the CJRS covered not just furloughed wages, but also furloughed pension contributions and employers Class 1 NI.

Consequently, if you claimed both EA and the CJRS including employers Class 1 NI, you will probably have double claimed.  This is because due to the EA you would not have had to pay any Class 1 NI to HMRC until the total exceeded £4,000.

The good news is that CJRS claims stopped including Class 1 NIC from 1 August 2020, so a double claim would only apply to CJRS claims made prior to that date.

We therefore recommend that if you normally claim EA you should check your CJRS claims made between April 2020 and July 2020, and compare the amounts of Class 1 NI you included over those four months with your EA claimed of £4,000.

You will then need to repay the amounts of CJRS Class 1 NI you claimed each month, up to your EA claim of £4,000.

Let me give you an example:

EA claimed of £4,000 in April 2020 EPS submitted by 19 May 2020

CJRS claims submitted:

  • April 2020      – Class 1 NI amount £1,750
  • May 2020       – Class 1 NI amount £1,750
  • June 2020       – Class 1 NI amount £875 (half of staff returned to work on 01/06/20)
  • July 2020        – Class 1 NI amount £440 (3/4 of staff returned to work by 01/07/20)

The following amounts of CJRS Class 1 NI claimed would be repayable:

  • April 2020      £1,750

(Claimed EA of £4,000, so none of £1,750 CJRS Class 1NI claimed to date would have been payable)

  • May 2020       £1,750

(Claimed EA of £4,000, so none of £3,500 (£1,750 plus £1,750) CJRS Class 1NI claimed to date would have been payable)

  • May 2020          £500

(Claimed EA of £4,000, so whilst £4,000 (£1,750 plus £1,750 plus £500) of CJRS Class 1NI claimed to date would not have been payable, £375 (£875 less £500) of this month’s CJRS Class 1 NI was payable)

  • June 2020          £nil

(Claimed EA of £4,000, so all £440 CJRS Class 1 NI claimed this month was payable)

If however, you deferred claiming EA until your August 2020 payroll run, the point when CJRS claims no longer included Class1 NI, you will not have double claimed EA.

Should you find that you have over claimed CJRS because of this, unless you can recover it from any – final  - September 2021 CJRS claim, you will need to pay it back directly to HMRC – see HMRCs webpage “Pay Coronavirus Job Retention Scheme grants back” for how to do so.

This is obviously a very complicated area so if you have any queries on this, or indeed any other aspect of the CJRS, please contact me at martin.redfern@ase-global.com

 

 

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