15 October: Guidance from ICAEW’s Tax Faculty on the quick action needed to reconcile Employment Allowance (EA) and the NIC element of the Coronavirus Job Retention Scheme (CJRS).

Update 27 August 2021: Please note that the information below has been superseded by a clarification from HMRC on the interaction between EA and the NIC element of CJRS.

Employers who have claimed employment allowance (EA) in 2020/21 and the secondary (employer) national insurance contributions (NIC) element of the CJRS may find themselves in one of three different situations.

1. Employers whose total secondary (employer) NIC liability for the year will be less than £4,000.

These employers should claim EA only and not claim NIC via CJRS. This will ensure that the employer gets the full amount of EA and avoids any risk of an incorrect CJRS claim.

If the employer has claimed both EA and NIC under the CJRS, then the simplest approach for the employer would be to contact HMRC and repay the NIC element of the CJRS grant.

Employers can reduce their CJRS claim by making a correction in a subsequent claim or by repaying the grants already received. Employers wanting to repay a grant or part thereof must contact HMRC to get a payment reference number to ensure that HMRC can correctly allocate the employer’s remittance.

The contact options for employers are webchat or phone 0800 024 1222. HMRC recommends that, owing to high call volumes, webchat might be quicker.

See HMRC’s guidance Pay coronavirus job retention scheme grants back (updated 16 September), which also says that employers need to notify HMRC by the latest of:

• 90 days after the date they received the grant they were not entitled to;
• 90 days after the date they received the grant that they were no longer entitled to keep because their circumstances changed; or
• 20 October 2020.

Note: For employers who have not yet claimed the EA this tax year, but who now realise they could more beneficially have done so from April 2020, the solution is to pay back the appropriate amount of CJRS (see above) and then tick the Employer Payment Summary (EPS) to claim the EA in the next payroll. The EA claim will recover the year to date (YTD) secondary NIC at that point and then on an ongoing basis until the end of the tax year (or until £4,000 has been claimed).

2. Employers who, taking the year as a whole, will pay more than £4,000 secondary NIC on top of the NIC covered by CJRS grants.

ICAEW’s Tax Faculty considers that employers who have claimed both EA and the NIC element of CJRS should not cancel EA claims only to reinstate them later in the year.

This is because, as stated above in section 1, most payroll software allocates EA claims against the YTD secondary NIC from when the claim is made and then on an ongoing basis until the end of the tax year or £4,000 has been claimed.

Therefore, even if a claim for EA is made after the first tax month, EA will effectively be allocated first to NIC arising at the start of the tax year.

This will mean that if a claim has also been made for NIC under CJRS, the EA may be allocated to the same NIC as the NIC claimed under CJRS.

ICAEW takes the view that, if for the whole tax year an employer’s total secondary NIC liability exceeds the sum of £4,000 available under EA plus the amount of NIC claimed under CJRS, the employer will not have made a double claim. This is the case even if payroll software allocates both EA and the NIC element of CJRS to the same NIC because of EA being allocated on a YTD basis.

Therefore, the employer will not be liable to pay back their CJRS grant relating to this NIC under the charging provision in para 8, Sch 16, Finance Act 2020 Charge if person not entitled to coronavirus support payment.

3. Employers with a secondary NIC liability of less than £4,000 on top of the NIC covered by CJRS grants but more than £4,000 in total.

To ensure that the amount of EA claimed plus grants claimed for NIC under CJRS do not exceed their total secondary NIC liability for the year, these employers will need to reduce: 

• their EA claim, or
• their claim for NIC under CJRS.

Employers can ask HMRC to reduce their EA claim if they “contact HMRC via the employer helpline to restrict the value of your Employment Allowance claim”. This instruction can be found in HMRC’s guidance Calculate how much you can claim using the CJRS (updated 2 October) in the subsection Adjusting your claim because of Employment Allowance.

Employers who want their EA claim to be for pay periods going forward from when their EA claim is made would have to either adjust their payroll software (probably impossible in most software as HMRC specified that EA claims are for a whole tax year and not just part of a tax year) or phone HMRC. See HMRC’s guidance Claiming EA: further employer guidance (updated 7 May) section 7 Claiming EA after the start of the tax year.

Employers can adjust the NIC element of their CJRS claims either in their next claim or by repaying the grant to HMRC. See section 1 above for guidance on how to do this – and the deadline for doing so.