Cast your mind back to the second quarter of 2020 when the Coronavirus Job Retention Scheme (CJRS) covered the entire wages of employees on furlough (up to a monthly cap), including the employer’s NIC. There was great confusion on the interaction of the Employment Allowance (EA) and CJRS claims.
Clearly the secondary class 1 NIC for the period from 6 April to 31 July 2020 could not simultaneously be covered by the EA and reclaimed under the CJRS. Our advice on 23 April 2020, was to subtract any employers’ NIC covered by the EA from the CJRS claim, or delay the claim for the EA until a later pay period.
The decision to delay claiming the EA proved to be the wise choice as the Government then announced that from 1 August 2020 the CJRS grant would not cover the employers’ NIC.
HMRC has clarified its view that claims for the EA cannot be back-dated to cover secondary NIC paid or due for periods before the claim (see para 10 of EA arrangements). Thus, where the EA was claimed in August 2020 or later in 2020/21 it should not cover the secondary NIC included in CJRS claims for April to July 2020.
HMRC has also clarified that a claim for EA takes precedence over a CJRS claim, and the EA claim cannot be reduced or changed retrospectively.
Unfortunately, some payroll software backdated recovery of employers’ secondary NIC to the start of the tax year, regardless of when the EA claim was notified to HMRC, as historically this has been what payroll software was required to do. Some software providers have amended their software to stop this retrospection, and some employers reduced their EA claim manually to avoid double claiming for April to July 2020.
Where the amount of EA claimed was not amended, and there was also a claim of employers NIC in the CJRS grant leading to a double claim, the value of that over-claimed NIC must be repaid.
Written by the Tax Advice Network