Employment Allowance and CJRS Interaction Remains Unclear

4 September 2020

Despite previous clarifications, there are still ambiguities on how to correctly claim Employment Allowance while also claiming under the CJRS.

advice : COVID-19, Employment and Tax

Since its introduction, the Coronavirus Job Retention Scheme’s rules created some ambiguity when it comes to how it relates to the Employment Allowance.

The Employment Allowance allows some employers to reduce their secondary Class 1 National Insurance liability by up to £4,000.

On the other hand, grants under the CJRS were designed to cover the cost of National Insurance Contributions too, up until the end of July.

We previously wrote among the most common mistakes made when claiming under the Job Retention Scheme, that it was important to remember that when an employer has already claimed the Employment Allowance, they take that into account when calculating the NIC element of their Job Retention Grant.

Following clarification from HMRC, the ICAEW published an update stating that:

“Employers who still have at least £4,000 of secondary NIC available to be relieved by EA in 2020/21 after claiming under the CJRS, can claim relief under both schemes provided that the 2020/21 EA claim is not made earlier than July 2020 and therefore applies to August 2020 onwards only, thereby ensuring that EA is not claimed on NIC covered by CJRS grants.

Despite with this clarification, there is still an exception remaining which is object of an ambiguity, even when Employment Allowance has not been claimed for the months up to July 2020 – thus apparently not creating an overlap with CJRS.

Instead, if the secondary NIC liability for the tax months from August 2020 onwards is less than the £4,000 Employment Allowance threshold, the remainder of that will be automatically carried back and offset against the secondary NIC paid in the previous months of the year, although that was already covered by the CJRS.

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Given that employers won’t know exactly how much their secondary NIC liability for 2020/21 will be until the end of the tax year, it becomes impossible to correctly adjust Employment Allowance and CJRS claims to ensure no overlap.

According to ICAEW, this could be fixed by an upcoming software update from HMRC, which could override the allocation of EA to earlier months of the 2020/21 tax year.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.